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BY  THE  SAME  AUTHOR. 


THE     WAGES     QUESTION.        A 

Treatise  on  Wages  and   the  Wages  Class. 
8vo.     $3.50. 

MONEY.     8vo. 


MONEY 


BY 


FRANCIS   A.   WALKER 

ij 

Professor  of  Political  Economy  and  History  in  the  Sheffield  Scientific  School  of 

Yale  College,  and  Lecturer  in  Political  Economy  in  the  Johns  Hoj>kins 

University;  author  of  "The  Statistical  Atlas  of  the   United 

Statts"  '•'"The  Wages   Question"  etc. 


NEW    YORK 

HENRY    HOLT    AND    COMPANY 
1878 


COPYRIGHT  1877, 
Bv  HENRY  HOLT. 


TROW'S 

PRINTING  AND  BOOKBINDING  Co., 
205-213  East  \*th  St., 

NEW  YORK. 


PREFACE. 

THIS  volume  contains  the  substance  of  a  course  of 
lectures  delivered  last  spring  in  the  Johns  Hopkins 
University,  Baltimore.  The  most  considerable  change 
which  has  been  made  in  preparing  the  lectures  for  the 
press  is  the  definitive  abandonment  of  the  term  Cur- . 
rency.  After  carrying  that  word  around  for  twenty 
years  I  have  in  the  present  work  rid  myself  of  the  in- 
cubus, and  have  experienced  somewhat  the  same  feeling 
of  relief  as  did  the  Ancient  Mariner  when  the  dead  body 
of  the  Albatross  dropped  from  his  neck  and  disappeared 
in  the  sea.  There  is  in  my  humble  opinion  not  one 
thing  to  be  said  for  this  ill-omened  word,  except  that  it 
forms  its  plural  rather  more  agreeably  than  does  Money. 
Some  awkwardness  of  expression  has  doubtless  resulted 
from  my  first  attempt  to  substitute  that  good  old-fash- 
ioned word  for  the  mischievous  "Yankeeism,"  as  Mr. 
McLeod  calls  it,  which  in  the  early  part  of  this  century 
obtained  so  strong  a  hold  upon  the  public  ear.  Per- 
haps it  does  not  savor  too  much  of  abusiveness  to  say 
that  the  new-fangled  term  made  its  way  to  general  ac- 
ceptance in  no  small  degree  because  its  own  vagueness 
answered  well  to  the  cloudiness  of  the  popular  mind  on 
the  subject  of  Money ;  and  that  its  vagueness  has,  in 
turn,  done  much  to  obscure  the  truth  during  the  seventy- 
five  weary  years  of  economical  discussion  since  it  became 
current. 


VI 


PREFACE. 


Something  more,  however,  than  a  correct  terminology 
is  needed  to  resolve  the  deep,  dark  questions  which  con- 
stitute what  Gen.  Craufurd,  in  his  "Keflections  on  the 
Circulating  Medium,"  calls  "the  most  intricate,  abstruse, 
complex  and  subtile  parts  of  political  economy."  It  is, 
indeed,  as  Prof.  Price  declares,  "a  fatal  theme."  "I 
have  found  no  branch  of  my  subject,"  wrote  Sir  James 
Steuart,  "  so  difficult  to  reduce  to  principles  as  the  doc- 
trine of  Money." 

It  is  strange  that  an  institution  wholly  of  man's  de- 
vising should  so  baffle  man's  research,1  but  it  seems,  as 
Prof.  Jevons  has  remarked,  that  a  kind  of  intellectual 
vertigo  attacks  all  writers  on  this  theme.  Nor  is  it  a 
fault  of  the  head  alone  which  is  apt  to  appear  in  such 
discussions.  Sir  Walter  Scott,  in  his  "Letters  on  the 
Currency  of  Scotland,"  puts  into  the  mouth  of  a  surly 
critic  a  complaint  which  Sir  "Walter  manifestly  intended 
for  the  whole  race  of  writers  on  Money.  "In  your  ill- 
advised  tract  you  have  shown  yourself  as  irritable  as 
Baalam,  and  as  obstinate  as  his  ass."  If  this  volume 
makes  no  great  contribution  to  the  philosophy  of  the 
subject,  the  author  trusts  he  will  be  judged  to  have 
shown  no  excess  of  controversial  zeal,  no  lack  of  court- 
esy towards  those  writers  of  reputation  from  whom  he 
is  compelled  to  differ. 

A  great  degree  of  originality  is  not  claimed  for  the 
present  work.  If  it  shall  be  found  to  assist  the  reader 
in  his  study  of  this  difficult  subject,  it  will  probably  be 
in  the  following  way : 

1.  By  rejecting  the  word  Currency  and  extending  the 
term  Money  to  include  bank-notes  [pp.  395-400] ;  by  a 
new  analysis  of  the  function  of  Money  in  recording  and 

1  Perry's  Elements  of  Pol.  Econ.,  p.  205. 


PREFACE.  vii 

registering  for  mutual  comparison  the  values  of  all  com- 
modities in  the  markets,  and  the  substitution  thereupon 
of  the  term  "  common  denominator  in  exchange  "  for  the 
inappropriate  and  misleading  term  "measure  of  value" 
[pp.  280-90] ;  and  by  supplying  the  omitted  proviso  to 
Eicardo's  propositions  respecting  the  circulation  of  de- 
based coins  and  inconvertible  paper  [pp.  198-9 ;  279], 
the  doctrine  of  Money  is  relieved  of  certain  factitious 
features  which  have  obscured  or  partially  concealed  the 
nature  and  office  of  that  great  economical  agent. 

2.  At  the  risk,  perhaps  the  actual  cost,  of  not  a  little 
repetition,  topics  which  are  usually  blended  in  treat- 
ment are  here  separately  taken  up  and  subjected  to  an 
individual  discussion.    "Nothing,"  says  Edmund  Burke, 
"is  so  great  an  enemy  to  accuracy  of  judgment  as  a 
coarse  discrimination,  a  want  of  such  classification  and 
distribution  as  the  subject  admits  of."     The  author  has 
sought  not  only  to  trace  out  the  bearings  of  all  dis- 
tinguishable parts  of  the  general  subject,  but,  by  arts  of 
arrangement  and  even  by  artifices  of  typography,  to 
emphasize  distinctions  and  call  attention  sharply  to  dis- 
criminations which  he  has  learned  by  experience  are 
likely  to  be  overlooked  by  the  casual  reader  and  even 
by  the  faithful  student. 

3.  If  any  subject  has  presented  to  the  author's  mind 
peculiar  difficulties,  he  has  taken  special  pains  to  set  forth 
the  questions  involved  therein  stripped  to  the  kernel, 
with  the  arguments  and  authorities  on  either  side  fully 
and  fairly  arrayed.     At  but  a  single  point  have  I  been 
conscious  of  any  bias  of  judgment  arising  from  prepos- 
session.    The  doctrine  that  paper  money,  nominally  or 
really  convertible  into  coin,  is  liable  to  be  issued  in  ex- 
cess under  speculative  impulses  from  trade,  was  main- 
tained with  religious  earnestness  for  more  than  thirty 


viii  PREFA  CE. 

years  by  my  honored  father,  and  I  cannot  claim  to  be 
free  from  a  strong  desire,  not  of  a  purely  philosophical 
origin,  to  establish  the  truth  of  that  doctrine.  I  trust 
it  will  not  be  found  that  I  have,  on  that  account,  failed 
fairly  to  present  and  argue  the  questions  involved. 


The  philosophy  of  money  owes  little  to  the  cultiva- 
tion of  systematic  political  economy  in  modern  times. 
"If,"  says  M.  "Wolowski,  "political  economy  has  within  a 
century  become  a  distinct  science,  the  fundamental  doc- 
trines which  it  teaches  were  in  great  part  familiar  to 
the  eminent  minds  of  antiquity."  In  no  department  of 
economical  inquiry  does  this  hold  true  to  so  large  an  ex- 
tent as  in  that  which  is  now  before  us.  Aristotle's  the- 
ory of  the  Money-function  is,  even  to-day,  accepted  by 
a  large  school  of  economists  as  containing  the  full  es- 
sence of  truth  on  this  subject.  The  same  theme  was 
among  the  first  to  command  the  attention  of  the  thought- 
ful upon  the  intellectual  revival  of  Europe.  In  1360 
Nicole  Oresme,  Bishop  of  Lisieux,  moved  by  the  abuses 
of  the  French  coin,  wrote  his  treatise  on  Money,  a  work 
which,  after  being  long  lost  to  the  world,  was  about  1862 
discovered1  by  the  eminent  German  economist,  Eoscher, 
of  Leipzig,  and  has  since  been  put  out  by  M.  Wolowski 
in  the  original  Latin  text,  with  an  introduction  and  a 
French  translation.  No  work  extant  expresses  more 
justly  and  strongly  the  pernicious  effects  of  that  morbus 
numericus  which  wrought  such  misery  among  the  peoples 
and  caused  such  weakness  in  the  governments  of  Eu- 
rope, and  had  afflicted  France  with  especial  virulence, 

1  See  his  communication  to  the  French  Academy,  in  M.  Wolowski's 
edition  of  Oresme's  work. 


PREFACE.  ix 

preparing  the  way  for  the  arms  of  Edward  III  and 
Henry  V.  Oresme  sets  forth*  the  principles  of  coinage 
and  seigniorage  with  a  precision  nowhere  surpassed. 

At  the  beginning  of  the  sixteenth  century  the  astrono- 
mer Copernicus  addressed  to  the  king  of  Poland  his 
treatise,  "Monete  Cudende  Ratio,"  which  opens  with 
this  broad  declaration  :  "Numberless  as  are  the  evils  by 
which  kingdoms,  principalities  and  republics  are  wont 
to  decline,  these  four  are,  in  my  judgment,  most  bale- 
ful :  civil  strife,  pestilence,  sterility  of  the  soil,  and  cor- 
ruption of  the  coin.  The  first  three  are  so  manifest 
that  no  one  can  fail  to  apprehend  them ;  but  the  fourth, 
which  concerns  money,  is  considered  by  few,  and  those 
the  most  reflective,  since  it  is  not  by  a  blow,  but  little 
by  little  and  through  a  secret  approach,  that  it  destroys 
the  state." 

But  it  was  Italy  that  made  the  largest  of  the  early 
contributions  to  the  philosophy  of  the  subject.  That 
country,  it  has  been  remarked,  was  long  noted  for  the 
worst  money  and  the  best  writers  on  money.1  The  coin 
of  Italy  was  sunk  into  a  rayless  abyss  of  discredit  while 
Beccaria  and  Verri  were  expounding  the  true  laws  of 
monetary  circulation;  and  the  works  of  Scaruffi  and 
Neri  were  manuals  for  the  mints  of  the  Continent. 
Nor  was  the  association  accidental.  It  was  the  sight  of 
flagrant  abuses  which  set  Nicole  Oresme  in  France  to 
pondering  the  laws  of  money.  It  was  the  almost  incon- 
ceivable degradation  of  the  coin  of  Italy  that  drove  its 
publicists  to  investigate  the  cause  of  the  evil  and  to  re- 
flect upon  the  means  of  cure.  Let  us  hope  that  the  losses 
and  sufferings  to  which  the  people  of  the  United  States 
have  been  subjected  during  the  past  sixteen  years  will  at 

1  Colwell,  Ways  and  Means  of  Payment,  p.  10.6  n. 


x  PREFACE. 

least  bring  about  some  good  result  by  enlightening  the 
public  mind  as  to  the  nature  and  the  laws  of  money,  and 
by  firmly  establishing  certain  principles  at  once  of  pub- 
lic faith  and  public  policy  from  which  no  temptation  of 
present  advantage  nor  even  the  stress  of  warlike  exi- 
gency shall  ever  again  be  able  to  move  the  nation. 

"While  this  work  aims  at  being  a  systematic  treatise 
on  Money,  and  has  been  written  without  special  refer- 
ence to  the  existing  financial  situation,  I  cannot  forbear, 
in  view  of  the  propositions  now  pending  in  Congress 
for  altering  our  coinage  laws,  to  quote  the  words  which 
a  great  English  statesman  addressed  to  his  countrymen 
during  the  period  of  the  Bank  Restriction:1  "A  very 
little  reflection  will  satisfy  every  reader  that,  in  the 
present  state  of  things,  and  so  long  as  we  have  no  fixed 
standard  of  value  for  our  currency,  it  would  be  absurd 
to  send  into  circulation  any  new  coinage." 

1  Huskisson,  The  Depreciation  of  the  Currency. 


CONTENTS. 

PAET  I. 
METALLIC   MONET. 

CHAPTER  I. 

THE  PRIMITIVE  FUNCTION  OF  MONEY  : 

The  Medium  of  Exchange;  the  Denominator  of  Values;  the 
Standard  for  Deferred  Payments.  Importance  of  the  Money- 
function,  -  1 

CHAPTER  II. 
THE  ELEMENTS  OF  MONET  : 

General  Acceptability,  Portability,  Divisibility,  Non-liability  to 
Deterioration,  Comparative  Stability  of  Yalue.  The  Metals  as 
Money ;  Silver  -and  Gold,  24 

CHAPTER  III. 

THE  TERRITORIAL  DISTRIBUTION  OF  MONEY  : 
The  Mercantile  Theory;  how  much  Money  does  a  Community 
require  ? ;  Distribution  through  the  agency  of  Price ;  Eelation 
of  the  Volume  of  Money  to  prevailing  Prices ;  Effect  of  the 
Credit  System  and  of  Banks  in  reducing  the  Demand  for 
Money,  44 

CHAPTER  IV: 

THE  IMPORTANCE  OF  THE  MONEY-SUPPLY  : 

Consequences  of  a  Reduction  of  the  Volume  of  Money ;  Effects 
of  a  Progressive  Depreciation  of  Money ;  the  Supply  of  Mon- 
ey and  the  Rate  of  Interest,  -  -  -  -  76 


xii  CONTENTS. 

CHAPTER  V. 

THE  PRODUCTION  OF  THE  PRECIOUS  METALS  : 
The  Field  of  Production ;  its  Economic  Conditions ;  Production 
in  the  Early  Ages  largely  Non-economical ;  Effects  of  Haste 
and  Greed,  of  War  and  Civil  Convulsion,         -  -  -     99 

CHAPTER  VI. 

THE  PRODUCTION  OF  THE  PRECIOUS  METALS,  CONTINUED  : 
The  Elements  of  the  Money-supply :  Consumption  of  the  Metals 
in  the  Arts;  Abrasion  of  Coin;  the  Drain  of  Silver  to  the 
East.  Accumulation  of  Treasure  in  the  Reign  of  Augustus; 
gradual  Decline  of  Mining  Industry ;  Invasion  of  the  Barbari- 
ans ;  Loss  of  Mining  Populations ;  the  Silver  Famine  of  the 
Middle  Ages,  -  117 

CHAPTER  VII. 

THE  PRODUCTION  OF  THE  PRECIOUS  METALS,  CONTINUED  : 
The  Discovery  of  America;  the  Mines  of  Mexico  and  Peru;  the 
Amalgamation  Process ;  Rise  of  Prices  in  Europe,  1570-1640; 
Effects  on  Society  and  Industry ;  the  Spanish- American  Rev- 
olutions, 1809-25;  the  falling  off  in  Production:  Effect  on 
Prices,  132 

CHAPTER  VIII. 

THE  PRODUCTION  OF  THE  PRECIOUS  METALS,  CONCLUDED  : 
The  Calif ornian  and  Australian  Episode ;  rapid  Increase  of  the 
Gold-supply ;  M.  Chevalier's  and  Prof.  Cairnes's  Investigations 
of  the  Effects  upon  Different  Classes  and  Countries;    Corn- 
rents  proposed ;  a  Tabular  Standard  for  Deferred  Payments,      144 

CHAPTER  IX. 
COINAGE,  -  -  -  164 

CHAPTER  X. 
SEIGNIORAGE  : 

Who  shall  bear  the  charge  of  Coinage  ? ;  Effect  of  Seigniorage 
on  Prices ;  Debasement  of  the  Coin,     -  181 

CHAPTER  XL 

RECOINAGE. 

The  English  Recoinages  of  1560,  1696,  and  1774.    Who  shall 
bear  the  charge  of  Recoinage  ?  -  205 


CONTENTS.  ariii 

CHAPTER  XII. 

THE  CONCURRENT  CIRCULATION  OF  Two  METALS  : 
Billon,  or  Token-money ;  Effect  on  the  Poorer  Classes,  and  on 
Retail  Prices.  "Single  or  Double  Standard?";  the  Experi- 
ence of  England  and  the  United  States;  Variations  in  the 
Comparative  Purchasing  Power  of  Gold  and  Silver ;  Influence 
of  the  French  Coinage  Law;  the  Gold  Panic,  1850-9;  the 
Silver  Panic,  1867-77 ;  Germany  and  the  United  States  dis- 
card Silver,  -  217 

CHAPTER  XIII. 
"  THE  BATTLE  OF  THE  STANDARDS  " : 

The  Interchangeable  Use  of  Gold  and  Silver  restrains  the  tend- 
ency to  Divergence  in  Value ;  Prof.  Jevons's  statement  of  the 
Question ;  the  Power  of  Law  to  join  the  Metals  in  Coinage  at 
a  Fixed  Ratio;  Theories  of  MM.  Wolowski  and  Cernuschi; 
Effects  of  discarding  Silver  upon  the  Debtor  Class ;  Political 
Difficulties  withstanding  Bi-metalism,  -  243 


PAET  II. 
INCONYEKTIBLE  PAPEK  MONEY. 

CHAPTER  XIV. 

THE  THEORY  OF  INCONVERTIBLE  PAPER  MONEY  : 
The  "  Measure  of  Values  "  a  Fallacy ;  "  Ideal  Money  " ;   Non- 
exportable  Money,        -  275 

CHAPTER  XV. 

ILLUSTRATIONS  OF  INCONVERTIBLE  PAPER  MONEY  : 
The  "  Chao  "  of  China ;  the  "  Bills  of  Credit "  of  the  American 
Colonies  ;  the  "  Continental  Currency  "  of  the  Revolution,        302 

CHAPTER  XVI. 

ILLUSTRATIONS  OF  INCONVERTIBLE  PAPER  MONEY,  CONTINUED  : 
The  "  Assignats  "  of  Revolutionary  France.     England  under  the 
Restriction ;  the  Bullion  Report  and  Debates ;  the  Resumption 
Act  of  1819.     The  Paper  Money  of  Russia  and  Austria.     Ori- 
gin of  the  Legal-tender  Notes  of  the  United  States,     -  336 


xrv  CONTENTS. 

CHAPTER  XVII. 

THE  THEORY  OF  INCONVERTIBLE  PAPER  MONEY,  CONCLUDED  : 
Conclusions:  the  Dangers  of  Overissue;    the  Consequences  of 
Inflation.     Does  the  Premium  on  G-old  Measure  the  Deprecia- 
tion of  Paper  ?-  376 


PAET  III. 
CONVEETIBLE   PAPEE   MONEY. 


CHAPTER 
THE  THEORY  OF  CONVERTIBLE  PAPER  MONEY  : 
Are  Bank-notes  Money  ?  ;  the  Advantages  claimed  for  Bank  Is- 
sues: Convenience;  Cheapness;  "Elasticity,"  495 

CHAPTER  XIX. 

THE  CURRENCY  PRINCIPLE  vs.  THE  BANKING  PRINCIPLE  : 
Can  Convertible  Paper  Money  be  issued  in  Excess  ?  ;  Views  of 
Lord  Overstone  and  Mr.  Tooke;    the  alleged  "Reflux"  of 
Bank-notes  ;  Relation  of  Bank  Paper  Money  to  Speculation 
and  Overtrading  ;  Competition  among  Issuers  ;  Small  Notes,     422 

CHAPTER  XX. 

CONVERTIBLE  PAPER  MONEY  IN  ENGLAND: 

The  Progress  of  the  Currency  Principle  ;  the  Recharter  of  1832  ; 
the  Act  of  1844  ;  Separation  of  the  Departments  ;  the  Princi- 
ple of  a  Secured  Circulation.  Operation  of  the  Act  ;  the  Crisis 
of  1846-7  ;  Suspension  of  the  Act.  Theory  of  the  Foreign 
Exchanges;  Regulation  of  Note-issues  by  the  Exchanges; 
the  Treatment  of  Crises  and  Panics  ;  Raising  the  Rate  of  In- 
terest, -  443 

CHAPTER  XXL 

CONVERTIBLE  PAPER  MONEY  IN  THE  UNITED  STATES  : 
What  are  the  Conditions  of  True  Convertibility  ?  ;  not  fulfilled  in 
the  United  States  ;  Competition  in  Issues  ;  Small  Notes  ;  Fail- 
ure of  the  Banks  to  Exchange  their  Notes  ;  Obstacles  to  Re- 
demption; Views  of  Prof.  A.  Walker;  the  First  Bank  of  the 
United  States  ;  History  of  Paper-money  Banking,  1811-37; 


CONTENTS.  xv 

The  Second  Bank  of  the  United  States ;  Panics  of  1837  and 
1839;  Efforts  at  Reform;  the  New  York  Free  Banking 
System ;  Experience  from  1844  to  1860 ;  the  National  Bank- 
ing System. 

OTHER  EXAMPLES  OP  CONVERTIBLE  PAPER  MONEY  : 
Scotland,  France,   Sweden,  and  Holland;    the  New   German 
Bank  Law,        -  479 

CHAPTER  XXII. 

THE  THEORY  OF  CONVERTIBLE  PAPER  MONEY,  CONCLUDED  : 
The  Bank  Paper  Money  of  the  United  States  frequently  Depre- 
ciated ;  how  this  was  effected ;  Failure  of  the  Reflux ;  Conse- 
quences to  the  Agricultural  Interest;  is  Bank  Paper  Money) 
issued  in  excess  of  Specie  held  for  Redemption,  really  Cheap  ?  517 


PART    I. 
METALLIC  MONEY. 


MONEY. 


CHAPTEE  I. 

THE  PRIMITIVE  FUNCTION  OF  MONEY. 

TRADE  arises  out  of  the  Division  of  Labor.  )  1 

The  need  of  Money  comes  from  the  fact  of  Trade.  ) 
Trade,  in  its  beginnings,  assumes  the  form  of  direct 
exchange,  commodity  for  commodity ;  what  we  call  Truck 
or  Barter.  But  trade  cannot  proceed  far  without  serious 
obstacles  to  direct  exchange  being  encountered  through 
the  failure  of  what  Prof.  Jevons  in  his  admirable  work, 
"Money  and  the  Mechanism  of  Exchange"  (1875),  terms 
Coincidence  in  Barter.  The  difficulty  is  "  to  find  two 
persons  whose  disposable  possessions  mutually  suit  each 
other's  wants.  There  may  be  many  persons  wanting, 
and  many  possessing  those  things  wanted ;  but  to  allow 
of  an  act  of  barter,  there  must  be  a  double  coincidence, 
which  will  rarely  happen." — [P.  3.] 

Illustrations  of  the  difficulty  noted  are  so  familiar  that 
I  need  not  dwell  upon  it  in  order  to  show  the  importance 
of  the  Money-function.  The  griefs  of  the  boot-maker 

1  "  Currency  has  its  origin  in  the  Division  of  Labor." — Prof.  Price, 
Principles  of  Currency,  p.  38. 


2  MONEY. 

wanting  a  hat,  who  found  many  who  had  hats  but  did 
not,  at  the  time,  want  boots,  and  many  more  who  wanted 
boots  badly  enough  but  were  quite  as  ill  off,  temporarily 
or  permanently,  respecting  hats,  have  been  related  by 
every  writer  upon  money.  Prof.  Jevons  notes  what  he 
regards  as  a  distinct,  though  minor,  inconvenience  of 
barter,  namely,  the  impossibility  of  dividing  many  kinds 
of  goods,  without  impairing  or  destroying  their  utility. 
"  A  store  of  corn,  a  bag  of  gold  dust,  a  carcass  of  meat 
may  be  portioned  out,  and  more  or  less  may  be  given  in 
exchange  for  what  is  wanted.  But  the  tailor,  as  we  are 
reminded  in  several  treatises  on  political  economy,  may 
have  a  coat  ready  to  exchange,  but  it  much  exceeds  in 
value  the  bread  which  he  wishes  to  get  from  the  baker, 
or  the  meat  from  the  butcher."— [P.  6.]  It  is  evident  that 
the  inconveniences  of  barter,  arising  out  of  the  difficulty 
noted  by  Prof.  Jevons,  of  securing  the  required  coinci- 
dence of  wants  and  of  possessions,  call  loudly,  even  in 
the  most  primitive  condition  of  industrial  society,  for 
some 

MEDIUM  OF  EXCHANGE, 

some  commodity  which  every  one  shall  freely  receive 
in  exchange  for  what  he  has  but  does  not  desire  person- 
ally to  consume,  in  the  confident  assurance  that,  with  it, 
he  can,  at  any  time,  and  of  kinds  and  in  quantities  to 
suit  his  immediate  wants,  obtain  from  others  what  they 
have  but  do  not  desire  to  use. 

Such   an  "interposed  commodity,"  to   employ  Prof. 
Price's  phrase,1  would  be  money,  whatever  its  material 
or  form.     This  is  the  first  Money-function  :  to  facilitate 
exchanges  by  obviating  the  necessity  of  the  double  coin- 
Principles  of  Currency,  p.  44. 


THE  MONEY-FUNCTION.  3 

cidence  which  is  required  in  Barter.1  An  exchange 
where  money  is  thus  introduced  becomes,  it  will  be  ob- 
served, a  twofold2  transaction.  "Every  sale  for  money," 
says  Prof.  Price,  following  J.  B.  Say,  »"is  only  half  a 
transaction."  Goods  are  sold  for  money,  in  order  that 
money  itself  may,  at  the  time  and  in  the  place  most 
suitable  and  convenient,  be,  in  turn,  sold  for  goods. 

"It  is  not,"  says  Mr.  Mill,  "with  money  that  things 
are  really  purchased.  Nobody's  income  (except  that  of 
the  gold  or  silver  miner)  is  derived  from  the  precious 
metals.  The  pounds  or  shillings  which  a  person  receives 
weekly  or  yearly,  are  not  what  constitute  his  income ;  they 
are  a  sort  of  tickets  or  orders  which  he  can  present  for 
payment  at  any  shop  he  pleases,  and  which  entitle  him  to 
receive  a  certain  value  of  any  commodity  that  he  makes 
choice  of.  The  farmer  pays  his  laborers  and  his  landlord 
in  these  tickets,  as  the  most  convenient  plan  for  himself 
and  them ;  but  their  real  income  is  their  share  of  his  corn, 
cattle  and  hay,  and  it  makes  no  essential  difference 
whether  he  distributes  it  to  them  direct,  or  sells  it  for  them 
and  gives  them  the  price ;  but  as  they  would  have  to  sell 

1  "  Une  fois  que  1'usage  du  numeraire  est  devenu  general,  chaque 
individu  ne  doit  plus  s'inquieter,  pour  satisfaire  tous  ses  besoms,  que 
de  f ournir  une  chose  ou  un  service  repondant  a  un  besoin  quelconque, 
certain  qu'il  est  d'obtenir,  en  echange  de  cette  chose  ou  de  ce  service, 
une  quantite  determinee  de  numeraire,  avec  laquelle  il  pourra  se 
procurer  les  autres  choses  et  les  autres  services  dont  il  aura  besoin." — 
[A.  E.  Cherbuliez,  Science  ^con.,  i,  241]. 

2  "  Ce  sont  deux  echanges  au  lieu  d'un.     Mais,  grace  a  ce  dedou- 
blement,  on  peut  effectuer  des  echanges  innombrables  sans  attendre 
le  hasard  d'une  coincidence,  presque  impossible,  de  besoins  inverses 
et  reciproques ;  grace  a  ce  dedoublement,  on  peut  ceder  et  acquerir 
toute  sorte  de  bien  par  quantites  tres-exactes  et  sans  qu'il  faille  jamais 
Itablir  1'equivalence  du  marche  par  1'introduction  d'objets  qui  lui  sont 
etrangers." — [H.  Cernuschi,  Mecanique  de  1'Echange,  p.  24]. 


4:  MONEY. 

it  for  money  if  he  did  not,  and  as  he  is  a  seller  at  any  rate, 
it  best  suits  the  purposes  of  all,  that  he  should  sell  their 
share  along  with  his  own,  and  leave  the  laborers  more 
leisure  for  worl^  and  the  landlord  for  being  idle.  The 
capitalists,  except  those  who  are  producers  of  the 
precious  metals,  derive  no  part  of  their  income  from 
those  metals,  since  they  only  get  them  by  buying  them 
with  their  own  produce ;  while  all  other  persons  have 
their  incomes  paid  to  them  by  the  capitalists,  or  by  those 
who  have  received  payment  from  the  capitalists,  and  as 
the  capitalists  have  nothing,  from  the  first,  except  their 
produce,  it  is  that  and  nothing  else  which  supplies  all 
incomes  furnished  by  them.  There  cannot,  in  short,  be 
intrinsically  a  more  insignificant  thing,  in  the  economy 
of  society,  than  money ;  except  in  the  character  of  a 
contrivance  for  sparing  time  and  labor.  It  is  a  machin- 
ery for  doing  quickly  and  commodiously  what  would  be 
done,  though  less  quickly  and  commodiously,  without  it ; 
and,  like  many  other  kinds  of  machinery,"  adds  Mr.  Mill, 
"it  only  exerts  a  distinct  and  independent  influence  of 
its  own  when  it  gets  out  of  order." — [Principles  of 
Political  Economy,  iii,  7,  3.] 


H.  MONEY  AS  A  MEASURE  OF  VALUE  (?) 

"  But  a  second  difficulty,"  says  Prof.  Jevons,  "  arises 
in  barter.  At  what  rate  is  any  exchange  to  be  made  ? 
If  a  certain  quantity  of  beef  be  given  for  a  certain  quan- 
tity of  corn,  and  in  like  manner  corn  be  exchanged  for 
cheese,  and  cheese  for  eggs,  and  eggs  for  flax,  and  so  on, 
still  the  question  will  arise — how  much  beef  for  how  much 
flax,  or  how  much  of  any  one  commodity  for  a  given 
quantity  of  another?  In  a  state  of  barter,  the  price- 


THE  MONET-FUNCTION.  5 

current  list  would  be  a  most  complicated  document,1  for 
each  commodity  would  have  to  be  quoted  in  terms  of 
every  other  commodity,  or  else  complicated  rule-of-three 
sums  would  become  necessary.  Between  100  articles 
there  must  exist  no  less  than  4950  possible  ratios  of 
exchange.  .  .  .  All  such  trouble  is  avoided  if  any  one 
commodity  be  chosen  and  its  ratio  of  exchange  with  each 
other  commodity  be  quoted.  Knowing  how  much  corn 
is  to  be  bought  for  a  pound  of  silver,  and  also  how  much 
flax  for  the  same  quantity  of  silver,  we  learn  without 
further  trouble  how  much  corn  exchanges  for  so  much 
flax.  The  chosen  commodity  becomes  a  common  denom- 
inator or  common  measure  of  value,  in  terms  of  which  we 
estimate  the  value  of  all  other  goods,  so  that  their  values 
become  capable  of  the  most  easy  comparison." — [Pp. 
5-6.] 

By  some  writers  this  function  of  money  is  treated  as 
even  more  important  than  that  of  a  medium  of  exchange. 
Thus,  Prof.  Bowen  writes  :2  "We  can  do  without  money 
as  a  medium  of  exchange,  and  can  even  barter  com- 
modities for  other  commodities  without  the  use  of  any 
medium.  But  we  cannot  do  without  money  as  a  com- 
mon standard,  or  measure,  of  value.  A  measure  must.be 
homogeneous  with  the  thing  measured.  As  that  which 
measures  length  or  capacity  must  itself  possess  length 
or  capacity,  so  that  which  measures  value  must  have  value 
in  itself,  or  intrinsic  value." 


1  "  L' evaluation  directe  de  chaque  bien  par  chaque  bien  est  une 
operation  presque  impossible.  ...  La  monnaie  simplifie  tout :  au  lieu 
d'evaluer  chaque  bien  par  chaque  bien,  on  evalue  tous  les  biens  par 
un  seul.  La  monnaie  est  le  bien  evaluant ;  tous  les  autres  biens  sont 
des  biens  evalues." — [H.  Cernuschi,  Mecanique  de  1'Echange,  p.  19.] 

a  American  Political  Economy,  p.  293. 


6  MONEY. 

And  Prof.  Eogers  says  i1  "  A  little  reflection  will  show 
that  some  common  measure  of  value  must  needs  be 
adopted  in  all  societies  whose  condition  is  superior  to 
mere  barbarism.  .  .  .  Even  if  money  were  not  a 
physical  object  it  would  still  be  necessary  as  a  symbol  or 
calculus.  We  need  some  common  measure  of  value  as 
we  need  measures  of  length  and  capacity,  even  though  we 
never  transfer  that  which  is  designated  by  the  name, 
money.  ...  So  necessary  is  this  process  to  trade, 
that  we  are  told  of  nations  who  have  no  money,  properly 
so  called,  but  who  have  been  constrained  to  invent  a  ficti- 
tious measure  in  order  to  express  values.  In  short,  the 
functions  of  money  in  the  act  of  exchange  present  a  close 
analogy  to  the  functions  of  language  in  relation  to 
thought.  As  there  may  be  a  rude  barter,  so  there  may 
be  a  rude  language  of  signs.  But  there  is  no  true  com- 
munication of  thought  except  by  articulate  speech,  and 
similarly  there  can  be  no  real  and  effectual  trade  except 
by  the  use  of  a  common  measure." 

And  Mr.  Mill :2  "In  order  to  understand  the  manifold 
functions  of  a  circulating  medium,  there  is  no  better  way 
than  to  consider  what  are  the  principal  inconveniences 
which  we  should  experience  if  we  had  not  such  a  medi- 
um. The  first  and  most  obvious  would  be  the  want  of  a 
common  measure  for  values  of  different  sorts.  If  a  tailor 
had  only  coats  and  wanted  to  buy  bread  or  a  horse,  it 
would  be  very  troublesome  to  ascertain  how  much  bread 
he  ought  to  obtain  for  a  coat,  or  how  many  coats  he 
should  give  for  a  horse.  The  calculations  must  be  re- 
commenced on  different  data,  every  time  he  bartered  his 
coats  for  a  different  kind  of  article ;  and  there  could  be 

1  Political  Economy,  p.  22. 
8  Principles  of  Political  Economy,  iii,  7,  1. 


THE  MONEY-FUNCTION.  *  7 

no  current  price  or  regular  quotations  of  value.  Whereas 
now,  each  thing  has  a  current  price  in  money,  and  he  gets 
over  all  difficulties  by  reckoning  his  coat  at  £4  or  £5,  and 
a  four-pound  loaf  at  6d.  or  Id.  As  it  is  much  easier  to 
compare  different  lengths  by  expressing  them  in  a  com- 
mon language  called  feet  and  inches,  so  it  is  much  easier 
to  compare  values  by  means  of  a  common  language  called 
pounds,  shillings,  and  pence.  In  no  other  way  can  values 
be  arranged  one  above  another  in  a  scale ;  in  no  other 
can  a  person  conveniently  calculate  the  sum  of  his  pos- 
sessions ;  and  it  is  easier  to  ascertain  and  remember  the 
relations  of  many  things  to  one  thing,  than  their  innumer- 
able cross-relations  with  one  another.  This  advantage 
of  having  a  common  language  in  which  values  may  be  ex- 
pressed, is,  even  by  itself,  so  important,  that  some  such 
mode  of  expressing  and  computing  them  would  probably 
be  used  even  if  a  pound  or  a  shilling  did  not  express  any 
real  thing,  but  a  mere  unit  of  calculation." 

There  is  to  be  observed,  extending  through  the  state- 
ments here  quoted  from,  these  four  justly  celebrated  writ- 
ers, an  unfortunate  confusion  of  the  functions  of  a  com- 
mon denominator  and  of  a  common  measure  of  value. 
And  I  make  bold  to  say  that  the  failure  of  nearly  aU 
writers  on  this  subject,  to  discriminate  between  the  two 
offices,  has  caused  no  small  part  of  the  contradiction  and 
confusion  of  the  popular,  and  even  of  the  scientific  dis- 
cussion of  the  subject. 

"A  common  denominator  or  common  measure  of 
value," l  says  Prof.  Jevons ;  but  surely  a  common  denom- 

1  So  Prof.  Rogers  follows  up  the  just  remark,  "  Even  if  money 
were  not  a  physical  object,  it  would  still  be  necessary  as  a  symbol  or 
calculus,"  by  the  wholly  inconsistent  assertion,  "  We  need  some  com- 
mon measure  of  value  as  we  need  measures  of  length  and  capacity." 


8  MONEY. 

inator  and  a  common  measure  of  value  are  not  equiva- 
lent; indeed,  they  have  no  necessary  relation  to  each 
other.  That  which  is  to  measure  must,  as  Prof.  Bowen 
says,  be  of  a  kind  with  the  thing  measured ;  of  a  kind, 
that  is,  in  the  respect  of  which  the  comparison  is  made. 
Not  that  we  need  cloth  to  measure  cloth ;  but  to  measure 
the*  weight  of  cloth,  we  must  have  that  which  itself  pos- 
sesses weight ;  and  to  measure  the  length  of  cloth,  that 
which  itself  possesses  length.  So  to  measure  value,  an 
article  must  possess  value.  But  values  being  measured 
may  be  expressed,  relatively  to  each  other,  by  a  simple 
scale  of  numbers ;  just  as  the  ratios  between  lengths  that 
have  been  measured  may  be  expressed  without  reference 
to  feet  or  inches.  If  I  say  that  three  objects  are,  in 
length,  respectively,  as  1,  7  and  4, 1  use  no  fictitious  meas- 
ure of  length.  And  so,  if  I  say  that  the  values  of  three 
commodities  are  as  1,  7  and  4,  I  am  using  no  "fictitious 
measure  of  value"  (Kogers).  I  take  a  unit,  and  say  that 
there  are  in  the  one  case  4  of  these,  in  another  7,  in  the 
last  only  1.  This  is  the  function  of  the  common  de- 
nominator, not  of  the  common  measure. 

The  distinction  is  vital.  In  it  lies  the  germ  of  the 
whole  controversy  between  the  advocates  of  Ideal  Money 
and  the  advocates  of  Heal  Money.  The  former  admit  all 
that  is  claimed  for  the  importance  of  having  a  common 
denominator  through  which  to  register  the  relative  values 
of  the  100  commodities,  for  instance,  of  which  Prof. 
Jevons  makes  account,  and  thus  save  the  necessity  of 
4950  quotations  in  the  price-current ;  but  for  this,  they 

But  a  mere  symbol  or  calculus  cannot  be  a  measure  of  length  or  of 
capacity.  In  like  manner  Mr.  Mill  shows  the  importance  of  having 
"  a  common  language  in  which  values  may  be  expressed  "  under  the  title 
"the  want  of  a  common  measure  for  values." 


THE  MONEY-FUNCTION.  9 

say,  and  they  say  justly,  no  distinct  article,  as  a  measure 
of  value,  is  necessary.  The  articles  are  measured  against 
each  other,  in  respect  of  their  several  values,  and  it  is 
only  necessary  that  there  should  be  some  common  de- 
nominator in  which  the  values,  thus  determined,  may  be 
expressed. 

If,  for  example,  it  takes  five  times  as  much  labor  to 
produce  a  wheelbarrow  as  to  produce  a  bushel  of  wheat, 
the  value  of  the  wheelbarrow  will  be  to  that  of  the  wheat 
as  5  to  1.  And  if  a  cart  costs  five  times  as  much  labor 
as  a  wheelbarrow,  the  respective  values  of  the  three  com- 
modities may  be  expressed  as  25  :  5  :  1. 

To  measure  values  we  must,  of  course,  use  valuesj  but, 
in  the  instances  given,  we  have  the  amounts  of  labor  em- 
bodied, so  to  speak,  in  the  several  articles,  compared 
directly  with  each  other,  and  the  resulting  ratios,  ex- 
pressed in  pure  numbers,  are  quite  sufficient  for  a  basis 
of  exchange.  It  is  not  necessary  to  the  comparison  that 
there  should  be  an  article  distinct  from  the  wheelbarrow, 
the  cart,  and  the  bushel  of  wheat,  itself  costing  one  day's 
labor,  against  which  each  of  these  three  articles  might 
by  turns  be  measured,  in  order  that  "  exchanging  propor- 
tions" should  be  established  between  them. 

We  shall  return  to  this  subject  at  a  later  period  in  our 
discussion,1  when  we  shall  undertake  to  show  that  it  is 
not  even  necessary  that  the  amounts  of  labor  respectively 
embodied  in  the  several  commodities  to  be  exchanged 
should  be  compared  against  each  other ;  but  that  articles 
possessing  no  "intrinsic  value"  (Bowen)  whatever,  mere 
bits  of  colored  paper,  perhaps,  may  afford  the  common 
denominator  needed  for  the  expression  of  a  list  of  values 
as  long  as  the  diversification  of  modern  industry  shall 

]Pp.  190;  281-8. 


10  MONEY. 

require.  For  the  present,  it  is  sufficient  to  point  out  the 
distinction  between  the  common  denominator  and  the 
common  measure  of  values ;  and  to  note  that  the  writers 
quoted  only  establish  the  need  of 

A  COMMON  DENOMINATOR 

for  the  various  commodities  to  be  exchanged  in  any 
market.  This,  then,  we  accept  as  the  second  Money- 
function. 


III.  But  something  more  still  is  required  in  the  de- 
velopment of  industrial  society. 

"A  third  function  of  money,"  says  Prof  Jevons,  "soon 
develops  itself.  Commerce  cannot  advance  far  before 
people  begin  to  borrow  and  lend,  and  debts  of  various 
origin  are  contracted.  It  is  in  some  cases  usual,  indeed, 
to  restore  the  very  same  article  which  was  borrowed, 
and  in  almost  every  case  it  would  be  possible  to  pay  back 
in  the  same  kind  of  commodity.  If  corn  be  borrowed, 
corn  might  be  paid  back  with  interest  in  corn ;  but  the 
lender  will  often  not  wish  to  have  things  returned  to  him 
at  an  uncertain  time,  when  he  does  not  much  need  them, 
or  when  their  value  is  unusually  low ;  a  borrower,  too, 
may  need  several  different  kinds  of  articles,  which  he  is 
not  likely  to  obtain  from  one  person;  hence  arises  the 
convenience  of  borrowing  and  lending  in  one  generally 
recognized  commodity,  of  which  the  value  varies  little. 
Every  person  making  a  contract  by  which  he  will  re- 
ceive something  at  a  future  day,  will  prefer  to  secure 
the  receipt  of  a  commodity  likely  to  be  as  valuable  then 
as  now.  This  commodity  will  usually  be  the  current 
money,  and  it  will  thus  come  to  perform  the  function  of 
a  Standard  of  Value."— [P.  14] 


THE  MONEY-FUNCTION.  H 

The  office  which  Prof.  Jevons  thus  indicates  is 
actually  performed  in  industrial  society  by  that  which 
we  call  Money ;  but  the  title  applied  Jby  Prof.  Jevons  to 
this  office,  or  function,  is  unfortunate,  both  as  being  little 
descriptive  and  as  arousing  the  antagonism  of  those  who 
advocate  the  concurrent  circulation  of  gold  and  silver  as 
money.  These  economists  find  themselves  galled  by  the 
use  of  this  term,  since,  if  money  serves  as  a  standard  of 
value,  then  the  use  of  two  metals  indifferently  as  money 
constitutes  a  double-standard  of  value,  a  phrase  which 
savors  of  absurdity,  and  which  the  bi-metallists  resent 
as  applied  to  their  scheme.  They  assert  that  there  can 
be  no  such  thing  as  a  standard  of  value,  single  or  double,1 
value  being  nothing  but  a  relation  between  commodities, 
a  ratio  of  exchange  varying  in  the  nature  of  the  case 
with  the  incessant  fluctuations  of  supply  and  demand. 

There  is  no  reason  why  the  prejudices,  if  they  are 
nothing  more,  of  so  large  and  respectable  a  body  of 
writers  should  not  be  regarded  in  this  instance,  since  the 
phrase  in  dispute  is  but  little  descriptive,  if  not  actually 
misleading.  Bearing  in  mind,  then,  Prof.  Jevons's  state- 
ment of  this  function,  but  changing  its  title  to  suit  the 
case  more  precisely,  we  say  that  money  performs  the  part 
in  industrial  society  of  a 

STANDARD  FOB  DEFEKRED  PAYMENTS. 

IV.  But  Prof.  Jevons  attributes  to  money  still  another 
function  in  industrial  society  : 

1  The  German  economist  Rau  thus  writes  to  M.  Wolowski :  "  La 
confusion  d'idees  qui  a  e*te  occasionnee  en  France  par  le  terme  etdlon 
n'existe  pas  chez  nous,  parce  que  nous  ne  designons  pas  par  le  memo 
mot  1'unite  de  mesure  pour  les  choses  materielles,  soit  le  volume  et  le 
poids  des  corps,  et  celle  des  prix." — [L'or  et  L'argent,  p.  42.] 

M.  Wolowski  proposes  JEvaluateur,  instead  of  Etalon. 


12  MONEY. 

"  It  is  worthy  of  inquiry  whether  money  does  not  also 
serve  a  fourth  distinct  purpose — that  of  embodying  value 
in  a  convenient  form  for  conveyance  to  distant  places. 
Money,  when  acting  as  a  medium  of  exchange,  circulates 
backwards  and  forwards  near  the  same  spot,  and  may 
sometimes  return  to  the  same  hands  again  and  again. 
.  .  .  But  at  times  a  person  needs  to  condense  his  prop- 
erty into  the  smallest  compass,  so  that  he  may  hoard  it 
away  for  a  time,  or  carry  it  with  him  on  a  long  journey, 
or  transmit  it  to  a  friend  in  a  distant  country. 

"  Something  which  is  very  valuable,  although  of  little 
bulk  and  weight,  and  which  will  be  recognized  as  very 
valuable  in  every  part  of  the  world,  is  necessary  for  this 
purpose.  The  current  money  of  a  country  is  perhaps 
more  likely  to  fulfill  these  conditions  than  anything  else, 
although  diamonds  and  other  precious  stones  and  ar- 
ticles of  exceptional  beauty  and  rarity  might  occasion- 
ally be  employed."^-[P.  15.] 

It  appears  to  me  that  this  suggestion  of  Prof.  Jevons1 
cannot  be  received  favorably.  Money  does  not  serve  as 
a  store  of  value.  When  a  commodity  comes  to  serve  as 
a  store  of  value,  it  ceases  to  be  money.  Gold  and  silver 
in  hoards,  or  as  treasure,  are  no  more  money  than  gold 
and  silver  in  plate,  or  on  the  roof  of  a  temple,  or  in  a 
statue  of  Jupiter.  The  fact  that  gold  and  silver  may  be 
used  as  a  store  of  value  constitutes,  indeed,  one  of  the 
important  facts  which  go  to  qualify  them  for  service  as 
money,  just  as  their  usefulness  in  the  arts  and  in  in- 
dustry goes,  as  we  shall  see,  to  the  same  object ;  but  in 

1  Mr.  Horton,  in  his  excellent  work,  "  Silver  and  Gold "  (1877), 
adopts  this  view  of  Money :  "  It  is  largely  used  for  the  peculiar  pur- 
pose of  preservation  of  value,  and  this  both  in  space  and  time." — [P. 
66,  cf.  p.  103]. 


THE  MONEY-FUNCTION.  13 

neither  case  are  they  performing  the  functions  of  money, 
which  have  reference  exclusively  to  exchanges,  arising 
out  of  the  division  of  labor. 

Such  is  the  analysis  of  the  operation  of  Money  made 
by  Prof.  Jevons.  Reserving  our  exception  to  the  fourth 
function,  and  to  the  titles  given  to  the  second  and  third, 
we  may  fully  accept  the  remark  with  which  he  closes  his 
analysis :  "It  is  in  the  highest  degree  important  that 
the  reader  should  discriminate  carefully  and  constantly 
between  the  four  functions  which  money  fulfills,  at  least 
in  modern  societies.  We  are  so  accustomed  to  use  the 
one  same  substance  in  all  the  four  different  ways,  that 
they  tend  to  become  confused  together  in  thought.  We 
come  to  regard  as  almost  necessary  that  union  of  func- 
tions which  is,  at  the  most,  a  matter  of  convenience,  and 
may  not  always  be  desirable.  We  might  certainly  em- 
ploy one  substance  as  a  medium  of  exchange,  a  second 
as  a  measure  of  value,  a  third  as  a  standard  of  value, 
and  a  fourth  as  a  store  of  value.  In  buying  and  selling 
we  might  transfer  portions  of  gold ;  in  expressing  and 
calculating  prices  we  might  speak  in  terms  of  silver ; 
when  we  wanted  to  make  long  leases  we  might  define 
the  rent  in  terms  of  wheat,  and  when  we  wished  to  carry 
our  riches  away  we  might  condense  it  into  the  form  of 
precious  stones. 

"  This  use  of  different  commodities  for  each  of  the 
functions  of  money  has,  in  fact,  been  partially  carried 
out.  In  Queen  Elizabeth's  reign,  silver  was  the  common 
measure  of  value,  gold  was  employed  in  large  payments, 
in  quantities  depending  upon  its  current  value  in  silver ; 
while  corn  was  required  by  the  Act  18th  Elizabeth, 
c.  VI  (1576),  to  be  the  standard  of  value  in  drawing  the 
leases  of  certain  college  lands." — [Pp.  16-7.] 

"There  is,  however,"  adds  Prof.  Jevons,  "evident 
2 


14  MONEY. 

convenience  in  selecting,  if  possible,  one  single  sub- 
stance which  can  serve  all  the  functions  of  money." 

But  while  we  recognize  the  truth  of  Prof.  Jevons's  re- 
mark that  two  and  even  more  articles  may  at  the  same 
time,  in  the  same  community,  be  performing  the  offices  of 
money,  we  hardly  accept  Turgot's  proposition  that  all 
commodities  are,  in  some  sense,  money.1  Any  article 
may  become  money :  all  cannot.  Money  must  always  be, 
in  the  phrase  of  the  logicians,  particular.  That  one  ar- 
ticle should  at  any  time  and  in  any  place  be  money,  it  is 
essential  that  all  others,  or  even  many  others,  should 
not. 

Such,  as  it  has  been  described,  is  the  primitive  func- 
tion of  money. 

Its  importance  can  scarcely  be  exaggerated.  "  It  has 
been  wisely  said,"  remarks  Chevalier,  "  that  there  is  no 
machine  which  economizes  labor  like  money,  and  its 
adoption  has  been  likened  to  the  discovery  of  letters."  2 
-[On  Gold,  p.  28]. 

The  illustrations  taken  to  show  the  inconveniences  of 
barter  have  been  drawn  from  a  primitive  condition  of  in- 

1  "  Ces  deux  proprietes  de  servir  de  commune  mesure  des  toutes 
les  valeurs,  et  d'etre  un  gage  representatif  de  toute  marchandise  de 
pareille  valeur,  renferment  tout  ce  qui  constitue  1'essence  et  1'utilite 
de  ce  qu'on  appelle  monnaie,  et  il  suit  des  details  dans  lesquels  je  viens 
d'entrer  que  toutes  les  marchandises  sont  a  quelques  egards  monnaie, 
et  participent  a  ces  deux  proprietes  essentielles  plus  ou  moius  a  rai- 
sori  de  leur  nature  particuliere." — [Sur  la  formation  et  la  distribution 
des  richesses,  xli.]    • 

2  "  The  value  of  money  has  been  settled  by  general  consent  to  ex- 
press our  wants  and  our  property,  as  letters  were  invented  to  express 
our  ideas ;  and  both  these  institutions,  by  giving  a  more  active  energy 
to  the  powers  and  passions  of  human  nature,  have  contributed  to 
multiply   the  objects  they  were  designed  to    express." — [Gibbon, 
chap,  ix.] 


THE  MONEY-FUNCTION.  15 

dustry ;  the  artisans  were  men  known  to  each  other,  each 
working  by  himself  and  producing  by  his  own  labor  the 
whole  of  the  article  he  desired  to  exchange  for  others; 
the  articles  assumed  for  the  purposes  of  illustration  were 
simple  necessaries,  in  universal  request. 

If,  however,  we  step  at  once  forward  to  the  most  highly 
organized  forms  of  modern  industry,  and  consider  the  in- 
conveniences of  universal  barter,  even  after  the  introduc- 
tion of  the  credit  system,  to  be  hereafter  described,1  we 
shall  find  them  such  as  to  constitute  a  most  onerous  and 
oppressive  tax  upon  the  production  of  the  community, 
amounting,  in  many  cases,  to  absolute  prohibition. 
Hence  when  Mr.  Huskisson  said  of  the  crisis  of  1825-6, 
that  England  approached  "within  twenty-four  hours  of 
barter,"2  he  represented  a  state  of  things  dangerous 
in  an  appalling  degree  to  the  welfare  of  the  kingdom. 
So  that,  even  in  combating  doctrines  deemed  perilous 
heresies,  like  those  of  the  Inflationists  of  the  Western 
States,  I  must  deem  it  always  unwise  to  make  state- 
ments like  that  contained  in  Mr.  Wells's  able  paper  en- 
titled "The  Cremation  Plan  of  Resumption." 

"Were  all  the  currency  in  the  country  absolutely 
swept  out  of  existence  to-morrow  morning,  there  would 
doubtless  be  much  inconvenience  experienced,  the  same 
as  though  all  the  yard-sticks,  foot-rules,  and  bushel 
measures  were  to  disappear ;  but  in  either  case,  there 
would  not  probably  be  one  less  acre  of  land  cultivated,  yard 
of  cloth  made,  ton  of  coal  dug,  or  pound  of  iron  smelted,  in 
consequence." — [P.  7.] 

How  differently  Mr.  Wells  viewed  the  Money-function 

1  Pp.  65-9. 

3  Lord  Normanby  wrote  from  Paris,  in  1848,  that  the  city  was 
"  reduced  to  a  condition  of  barter." 


16  MONET. 

when  dealing  directly  with  the  practical  inconveniences 
of  barter,  we  see  in  the  following  sentence  from  his  tract 
entitled  "Robinson  Crusoe's  Money,"  in  which  he  de- 
scribes the  embarrassment  of  his  islanders  in  carrying 
on  production  without  a  medium  of  exchange  : 

"  The  people  on  the  island — both  laborers  and  employ- 
ers— were,  however,  fully  agreed  that  life  was  too  short l 
to  waste  a  good  part  of  it  in  a  game  of  blind-man's-buff, 
on  a  large  scale,  for  such  this  attempt  to  conduct  ex- 
changes on  a  basis  of  direct  barter  substantially  was ;  but 
they  nevertheless  also  clearly  perceived  that  the  game 
would  continue  to  be  played  to  the  interruption  of  all  ma- 
terial progress,  unless  some  other  method  of  exchanging 
could  be  devised  and  adopted." — [P.  20.] 

In  his  "Nutrition  of  a  Commonwealth,"  Hobbes  has 
briefly  but  strikingly  exhibited  the  importance  of  the 
Money-function  in  the  State  : 

"  By  means  of  which  measures,  all  commodities,  mov- 
able and  immovable,  are  made  to  accompany  a  man  to 
all  places  of  his  resort,  within  and  without  the  place  of 
his  ordinary  residence,  and  the  same  passeth  from  man 
to  man,  within  the  Commonwealth,  and  goes  round  about, 
nourishing  as  it  passeth,  every  part  thereof ;  in  so  much 
as  this  concoction  is,  as  it  were,  the  sanguinifaction2  of 
the  Commonwealth ;  for  natural  blood  is  in  like  manner 
made  of  the  fruits  of  the  earth,  and,  circulating,  nourish- 
eth  by  the  way  every  member  of  the  body  of  man. 

"  By  concoction  I  understand  the  reducing  of  all  com- 

1  "  Les  h'eures  et  les  jours  ne  suffiraient  pas  a  chercher,  soliciter,  of- 
rir,  combiner  des  trocs." — [H.  Cernuschi,  Mec.  de  1'Ech.,  p.  25.] 

8  "  La  monnaie  est  appele'e  a  remplir  dans  1'economie  publique,  le 
role  du  sang  dans  1'economie  animale :  elle  commence  par  dissoudre 


THE  MONEY-FUNCTION.  17 

modities  which  are  not  presently  consumed,  but  reserved 
for  nourishment  in  time  to  come,  to  something  of  equal 
value,  and  withal,  so  portable  as  not  to  hinder  the  mo- 
tion of  men  from  place  to  place,  to  the  end  a  man  may 
have  in  what  place  soever,  such  nourishment  as  the 
place  affordeth.  And  this  is  nothing  else  but  gold  and 
silver  and  money." 

In  a  very  judicious  work  on  "Money  and  Banks,"  pub- 
lished in  1839,  Prof.  Tucker,  of  Virginia,  well  expressed 
the  advantages  to  be  derived  from  the  use  of  money  : 

"By  reason  of  the  readiness  with  which  money  en- 
ables every  producer  to  dispose  of  his  redundant  prod- 
ucts— that  is,  to  convert  them  into  what  has  a  more 
varying  and  universal  value — it  is  a  great  incentive  to 
industry.  Were  the  practice  of  barter  to  prevail,  the 
fear  felt  by  a  tradesman  that  he  might  not  find  persons 
who  would  both  want  his  commodities,  and  have  such  as 
he  himself  would  take  in  return,  would  check  his  indus- 
try, and  he  would  generally  wait,  as  is  often  the  case 
with  country  workmen,  for  articles  to  be  ordered  before 
they  were  made. 

"  There  is  also,  from  the  use  of  money,  a  great  saving  of 
time,  which  the  industrious  class  can  appropriate  to  the 
business  of  production. 

"Money  is  moreover  favorable  to  that  separation  of 
trades1  which  is  of  itself  so  propitious  to  increased 
production,  and  to  an  improvement  in  the  quality  of  the 
articles  produced.  If  there  was  no  general  medium  of  ex- 


tous  les  moyens  de  subsistance  pour  en  extraire  la  partie  nutritive  et 
repandre  ensuite  dans  les  diverses  parties  du  corps  les  elements  de 
conservation  et  de  vie." — [Roscher,  WolowskTs  Translation,  §117.] 

1  "  Money  is  essential  to  the  subdivision  of  labor  and  services,  and 
the  organization  of  society." — [Prof.  Rogers,  Political  Economy,  p.  23.] 


18  MONEY. 

change,  men  would  often  fabricate  articles  for  themselves, 
from  the  trouble  and  delay  of  obtaining  them  by  barter. 

"As  every  article  has  its  known  market  price  in  the 
general  measure  of  value,  where  there  is  one,  every 
producer  can  thereby  better  adapt  his  supply  to  the 
varying  demands  and  diversified  tastes  of  the  community. 
Money  furnishes  a  very  sensitive  barometer  of  these 
variations,  by  consulting  which  the  industrious  classes 
will  be  less  likely  to  misdirect  their  labor,  and  create  re- 
dundancy on  the  one  hand,  or  subject  the  community  to 
scarcity  on  the  other. 

"  The  introduction  of  money  has  also  a  manifest  ten- 
dency to  beget  frugality  and  encourage  accumulation.1 
Without  such  a  convenient  and  unchanging  representa- 
tive of  value,  or  mode  of  investment,  many  things  would 
be  wastefully  consumed,  supposing  them  to  be  produced, 
which  would  be  saved  if  convertible  into  money.  The 
practice  of  saving  is  so  much  encouraged  by  the  facilities 
which  the  precious  metals  afford,  that  it  occasionally 
grows  to  be  one  of  the  strongest  human  passions ;  and 
misers,  who  are  instances  of  the  abuse  of  frugality,  and 
who  are,  in  part,  the  creatures  of  a  metallic  currency, 
furnish  striking  proofs  of  its  power  over  human  action, 
a  power  which,  excessive  in  their  case,  exerts  a  healthy 
influence  on  the  rest  of  the  community." 

1  "  L'avantage  principal  de  1'or  et  de  1' argent  pour  la  formation  des 
capitaux  a  ete  de  favoriser  les  plus  petites  economies,  et  de  les  capita- 
User  de  fa9on  qu'elles  devinssent  au  bout  d'un  certain  temps  applicables 
a  des  acquisitions  de  meubles  et  de  vetements  d'un  usage  durable,  ou 
meme  a  solder  des  travaux  utiles.  Avant  1'introduction  de  ces  metaux 
dans  le  commerce,  un  homme  ne  pouvait  se  former  de  capital  que 
par  la  multiplication  de  ses  bestiaux  ou  1'emploi  de  son  travail  qui 
n'etait  pas  absolument  necessaire  a  sa  subsistence,  a  se  f  abriquer  des 
choses  durables  qui  fussent  a  son  usage,  ou  qui  pussent  etre  vendues." 
— [Note  of  Dupont  de  Nemours  to  Turgot,  Des  Richesses,  lii]. 


THE  MONEY-FUNCTION:  19 

Prof.  Perry  expands  one  of  the  ideas  suggested  by 
Prof.  Tucker,  as  follows : l 

"  The  fact  that  such  a  medium  is  in  universal  circula- 
tion, and  that  the  holders  of  it  are  ready  to  exchange  it 
against  any  sort  of  services  adapted  to  gratify  their 
desires,  exercises  a  kind  of  creative  power,  and  brings  a 
thousand  products  to  the  market  which  would  otherwise 
never  have  come  into  existence. 

"  Since  money  will  buy  anything,  men  are  on  the  alert 
to  bring  forward  something  which  will  buy  money,  and 
since  money  is  divisible  into  small  pieces,  an  incredible 
number  and  variety  of  small  services  are  brought  for- 
ward to  be  exchanged  against  these  pieces,  which 
services  we  have  no  reason  to  suppose  would  ever  be 
brought  forward  at  all  were  it  not  for  the  strong  attrac- 
tion of  the  money.  .  .  . 

"Money  is  a  form  of  capital  which  stimulates  and 
facilitates  all  the  processes  of  production,  without  excep- 
tion." 

This  is  treading  on  perilous  ground.  To  speak  of 
money  as  exercising  a  kind  of  creative  power  and  as 
stimulating  the  processes  of  production,  is  to  use  lan- 
guage which  might,  without  a  great  deal  of  violence, 
be  wrested  to  serve  the  argument  of  those  who,  at  the 
present  juncture,  are  clamoring  for  increased  issues  by 
the  government,  as  a  means  of  reviving  industry.  Strictly 
taken,  however,  Prof.  Perry's  statement  is  true.  We 
shall  have  occasion,  at  a  later  stage2  of  our  discussion,  to 
consider  the  effects  of  an  increase  in  the  amount  of 
money  circulating  in  any  community. 

Still  another  consideration,  bearing  not  so  much  upon 


1  Political  Economy,  213-4. 
2  See  chap.  iv. 


20  MONEY.  t 

the  production  as  upon  tlie  distribution  of  wealth,  may 
be  presented  in  the  language  of  the  eminent  German 
economist,  Roscher.1  It  is  that,  under  the  system  of  bar- 
ter, "the  party  which  is,  in  an  economical  view,  the 
stronger,  would,  in  every  bargain,  possess  an  advantage 
much  greater  than  'he  enjoys  at  present."  The  truth  of 
this  proposition  will  be  seen  if  we  imagine  two  persons, 
one  strong  and  active,  the  other  feeble  and  lame,  to  be 
required  to  travel  in  company,  first  along  a  smooth  road, 
and  afterwards  over  a  rough  and  broken  country.  Both 
will  suffer  from  the  irregularity  of  the  ground  in  the  sec- 
ond case ;  but  the  weak  and  lahie  person  will  experience 
relatively  the  greater  disadvantage.  He  will  fall  further 
behind,  as  well  as  accomplish  his  task  with  much  more 
of  weariness  and  pain. 

If  then,  as  there  is  reason  to  assert,  every  industrial 
community  is  divided  among  the  economically  weak  and 
the  economically  strong;  if,  in  the  exchange  of  products 
or  services,  some  classes  are,  in  their  best  estate,  at  a  dis- 
advantage by  reason  of  their  inability  to  resort,  with 
promptitude  and  assurance,  to  the  best  market,  whether 
from  poverty,  from  ignorance,  from  social  ties  and  do- 
mestic burdens,  or  from  apprehensions,  reasonable  or 
superstitious,  of  the  effects  of  change,  clearly  it  is  true 
that  any  cause,  like  the  introduction  of  money,  which 
facilitates  the  exchange  of  products  or  services,  does  not 
merely  advantage  the  community  as  a  whole,  but  relieves 
the.  weaker  classes  from  a  portion  of  their  disabilities 
and  raises  them  more  nearly  to  an  equality  with  those 
whom  they  have  to  encounter  in  the  competitions  of  in- 
dustry. All  classes  derive  a  benefit  from  the  use  of 
money ;  but  that  which  the  poorest  and  the  economically 
feeblest  receive  is  relatively  greater. 

1  Lib.  ii,  cap.  3. 


THE  MONEY-FUNCTION.  21 

But  while  we  thus  magnify  the  services  rendered  by 
money  to  industrial  civilization,  it  must  not  be  overlooked 
that  barter  is  still  retained  in  many  transactions,  even 
in  the  most  advanced  communities,  especially  in  the  pay- 
ment of  wages,  "in  kind."  This  fact  is  exceedingly  im- 
portant to  be  noted,  as  will  hereafter  appear.1  The  ques- 
tion of  a  direct  exchange  or  of  the  use  of  "an  interposed 
commodity,"  is  not  always  one  of  necessity,  but  some- 
times one  of  convenience  merely ;  of  convenience,  too,  in 
such  a  degree  only,  that  a  positive  reason,  perhaps  of  no 
great  force,  may  lead  to  a  considerable  extension  of  barter. 


Can  the  analysis  which  we  have  obtained  of  the  facts 
of  exchange  in  a  primitive  industrial  state  be  applied 
with  assurance  to  the  conditions  of  modern  society  with- 
out adding  to  or  subtracting  from  the  conclusions  we 
have  reached? 

Prof.  Price,  in  his  "  Principles  of  Currency,'*  remarks 
that  he  writes  first  of  metallic  currency,  or  coin,  "not 
only  because  it  is  the  most  ancient,  the  most  general, 
and  the  most  easily  understood  form  of  currency,  but 
also  because  it  furnishes  peculiar  facilities  from  its  sim- 
plicity for  ascertaining  the  fundamental  principles  of  all 
currency." — [P.  37.]  Again  he  says:  "We  arrived  at 
first  principles  in  the  investigation  of  coin.  Our  duty  is 
to  adhere  to  them  closely  and  to  apply  them  firmly,  un- 
der the  conviction  that  money,  currency,  whether  made 
of  paper  or  metal,  in  its  leading  features  is  always  the 
same,  and  that  its  various  forms  all  work  out  the  same 
general  result."— [P.  98.] 

It  is  yet  too  early  to  criticise  this  assumption  of  Prof. 

1  See  pp.  199-204. 


22  MONEY. 

Price,  tliat  the  analysis  of  the  Money -function  in  a  prim- 
itive condition  of  industrial  society  yields  all  the  ele- 
ments which  are  found  in  a  state  of  highly  organized  pro- 
duction and  trade  j1  but  let  us  leave  our  minds  open  on 
this  side. 

The  savage  builds  his  canoe  of  materials  every  part  of 
which  would  float  of  itself.  The  civilized  man  builds  his 
broadside  ship-of-war  of  material  which,  of  itself,  would 
drop  like  a  plummet  to  the  bottom. 

We  may  find,  in  our  further  investigation,  that  there  is 
something  more  in  the  philosophy  of  money  than  comes 
out  in  the  primitive  trade  between  the  tailor,  the  butcher 
and  the  baker. 


To  obtain  such  large  advantages  as  we  have  seen  result 
from  the  use  of  money,  no  small  sacrifice  may  willingly 
be  submitted  to. 

"  There  is  no  doubt,"  says  Mr.  James  Wilson,  "  that 
the  time  and  labor  which  are  saved  by  the  interposition 
of  coin,  as  compared  with  a  system  of  barter,  form  an 
ample  remuneration  for  the  portion  of  capital  withdrawn 
from  productive  sources,  to  act  as  a  simple  circulator  of 
commodities,  by  rendering  the  remainder  of  the  capital 
of  the  country  so  much  the  more  productive." — [Capital, 
Currency  and  Banking,  p.  15]. 

"  The  portion  of  capital,"  says  Mr.  Wilson.  Is  money 
capital?  We  have,  unfortunately,  on  this  point,  great- 
looseness  of  statement  among  economists,  due  more,  I 
am t disposed  to  believe,  to  carelessness  of  expression 
than  to  faults  in  thinking. 

Mr.  Wilson  says  :  "  Whatever  coin  is  actually  used  in 

1  "  The  vast  operations  of  commerce,  when  dissected,  only  reproduce 
the  action  of  the  tailor  and  his  two  fellow-tradesmen." — [P.  43.] 


THE  MONET-FUNCTION.  23 

circulation,  although  it  may  aid  the  productiveness  of 
the  general  capital  of  the  country,  is  itself  so  much  with- 
drawn from  productive  uses  " l  [ibid.]  ;  and  he  elsewhere 
speaks  of  money  withdrawn  from  circulation,  as  restored 
to  productive  mes.— [Of.  pp.  16,  39,  41,  228.] 

If  gold  and  silver  are  capital  before  their  use  as  money 
it  is  difficult  to  see  how  they  lose  this  character  by  being 
applied  to  a  use  in  which  they  facilitate  production  in 
a  high  degree.  It  would  be  quite  as  correct  to  speak 
of  a  railway  locomotive  as  withdrawn  from  productive 
uses  because  employed  only  in  the  transfer  of  commodi- 
ties, and  as  restored  to  capital  when  laid  up  for  repairs. 

1  In  the  same  way,  Prof.  Newcomb,  of  Washington,  who  has  writ- 
ten admirably  in  Political  Economy,  in  the  special  departments  of 
Money  and  Taxation,  says :  "  Gold  and  silver  coin  is,  in  the  strictest 
sense,  unproductive  capital,  whether  lying  in  the  vaults  of  banks,  or 
locked  up  in  a  miser's  chest,  or  circulating  as  money." — [Financial 
Policy  of  the  United  States,  p.  48.]  "  Sterile  mais  necessaire,"  says 
M.  Cernuschi  [Mec.  de  1'Ech.]  On  the  other  hand,  M.  Wolowski 
says  [La  Question  des  Banques,  p.  27nJ :  "  La  partie  du  capital  con- 
sacree  a  la  monnaie  produit  autant  et  plus  que  celles  qui  se  trouvent 
engagees  dans  1'autres  mecanismes.  II  n'est  pas  de  machine  qui 
coute  relativement  moins  et  qui  donne  des  resultats  plus  considera- 
bles." 


CHAPTEK  H. 

THE  ELEMENTS  OF  MONEY  :  THE  METALS  AS  MONEY. 

HAYING  seen  the  occasion  which  exists,  even  in  a  prim- 
itive state,  and  increasingly  in  communities  as  they  ad- 
vance industrially,  for  "  an  interposed  commodity  "  to 
facilitate  exchanges,  it  will  be  profitable  to  inquire  what 
qualities  a  commodity  should  possess  to  fit  it  for  such  a 
use. 

And  first,  it  may  be  said,  the  one  condition  which  is  ab- 
solutely essential,  is  general  acceptability.1  Specific  ma- 
terial qualities  may  be  noted,  partly  as  contributing  to 
this  fact  of  acceptability,  partly  as  offering  independent 
advantages  for  the  use,  as  money,  of  the  commodities  in 
which  these  are  found ;  but,  however  important  the  uses 
of  an  article,  however  admirably  suited  in  its  properties  to 
perform  such  an  office,  unless  the  fact  of  general  accepta- 
bility is  secured,  whether  with  or  without  reference  to 
such  qualities,  an  article  cannot  serve  in  this  capacity. 
It  is  the  disposition,  or  the  indisposition,  of  ttie  great  ma- 
jority of  the  community  to  receive  it  in  payment  which 

1  "II  danaro  e  la  merce  universale:  cioe  a  dire  e  quella  merce  la 
quale  per  la  universale  sua  accettazione,  per  il  poco  volume  che  ne 
rende  facile  il  trasporto,  per  la  commoda  divisibility  e  per  la  incor- 
ruttibilita  sua  e  universalmente  ricevuta  in  iscambio  di  ogni  merce 
particolare." — [Count  Yerri,  Delia  Pol.  Econ.,  §  2.] 


THE  ELEMENTS  OF  MONEY.  25 

settles  the  question  whether  a  particular  commodity  shall 
become  money  or  not.  The  reasons,  if  indeed  they  reason 
at  all  in  the  matter,  which  actuate  individuals  or  the 
community  in  their  preferences,  may  be  mistaken,  or 
the  appetencies  to  which  they  yield  may  be  such  as  the 
moral  philosopher  cannot  approve.  The  economist  has 
only  to  do  with  the  fact  that,  however  it  comes  about, 
the  willingness  of  the  mass  of  the  people  to  receive  one 
article  rather  than  others  in  payment  for  whatever  they 
have  to  sell,  furnishes  the  prime,  the  one  essential,  con- 
dition of  a  true  money. 

The  carved  pebbles  formerly  used  by  the  Ethiopians, 
the  wampum  which  circulated  between  the  New  England 
colonists  and  the  natives,  the  glass  beads  used  in  small 
payments  even  down  to  this  day  along  the  Arabian  gulf, 
the  shells  and  the  red  feathers  employed  throughout  the 
islands  of  the  Indian  ocean,  were  good  money,  though 
serving  no  purpose  but  ornament  and  decoration.1  They 
were  desired  by  the  community  in  general;2  men  would 
give  for  them  the  fruits  of  their  labor,  knowing  that  with 
them  they  could  obtain  most  conveniently  in  time,  in 
form  and  in  amount,  the  fruits  of  the  labor  of  others. 


1  "  Vanity,  which  among  some  peoples,  makes  its  appearance  be- 
fore the  need  of  clothing  is  felt."  —  [Wolowski,  notes  to  Roscher, 


a  It  is  not  enough  that  a  few  individuals  may  greatly  desire  an 
article.  Sir  Hans  Sloane  might  be  willing  to  give  five  guineas  for  an 
overgrown  toad;  but  were  a  hundred  gentlemen  of  the  county  to 
share  his  degraded  taste,  that  would  not  constitute  toads  money.  It 
is  hazardous  to  say,  however,  what  may  not  become  money  at  some 
time  and  place.  Milburn,  in  his  "  Oriental  Commerce,"  tells  us  that  at 
St.  Jago  "  old  clothes,  particularly  black,"  form  the  best  medium  for 
obtaining  supplies  of  food  from  the  natives. 

3 


26  MONEY. 

It  is  in  view  of  its  general,  or  universal,  acceptability 
that  certain  writers  speak  of  money  as  a  pledge  or  se- 
curity for  whatever  the  holder  may  wish,  now  or  at  a 
future  time,  to  obtain. 

Thus  Aristotle,  in  the  "  Nicomachian  Ethics,"  says : 
"With  regard  to  a  future  exchange  [if  we  want  nothing 
at  present],  money  is,  as  it  were,  our  security." 

Mr.  McLeod,  in  the  same  connection,  quotes  from 
Baudeau,  Adam  Smith,  and  Henry  Thornton,  as  follows  : 

Baudeau :  "It  is  a  kind  of  bill  of  exchange,  or  order 
payable  at  the  will  of  the  bearer." 

Adam  Smith  :  "A  guinea  may  be  considered  as  a  bill 
for  a  certain  quantity  of  necessaries  or  conveniences, 
upon  all  the  tradesmen  of  the  neighborhood." 

Thornton:  "Money,  of  every  kind,  is  an  order  for 
goods." 

Bastiat  develops  the  same  idea  in  the  following  illus- 
tration : 

"You  have  a  crown-piece,  what  does  it  mean  in  your 
hands?  It  is,  as  it  were,  the  witness  and  the  proof  that 
you  have  at  some  time  done  some  work,  which,  instead 
of  profiting  by,  you  have  allowed  society,  in  the  person 
of  your  client,  to  enjoy.  This  crown-piece  witnesses  that 
you  have  rendered  a  service  to  society,  and  moreover, 
it  states  the  value  of  it.  It  witnesses,  besides,  that  you 
have  not  received  back  from  society  a  real  equivalent 
service,  as  was  your  right.  To  put  it  in  your  power  to 
exercise  this  right  when  and  how  you  please,  society,  by 
the  hands  of  your  client,  has  given  you  an  Acknowledg- 
ment, a  Title,  an  Order  of  the  State,  a  Token,  a  Crown- 
piece,  in  short,  which  does  not  differ  from  titles  of  credit, 
except  that  it  carries  its  value  in  itself,  and  if  you  can 
read  with  the  eye  of  the  mind  the  inscription  it  bears, 
you  can  distinctly  see  these  words  :  'Pay  to  the  bearer 


THE  ELEMENTS  OF  MONET.  27 

a  service  equivalent  to  that  which  he  has  rendered  to 
society,  value  received  and  stated,  proved  and  measured 
by  that  which  is  on  me.' 

"After  that  you  cede  your  crown-piece  to  me  ;  either  it 
is  a  present,  or  it  is  in  exchange  for  something  else. 
If  you  give  it  to  me  as  the  price  of  a  service,  see  what 
follows :  your  account  as  regards  the  real  satisfaction 
with  society  is  satisfied,  balanced,  closed.  You  rendered 
it  a  service  in  exchange  for  a  crown-piece,  you  now  re- 
store it  the  crown-piece  in  exchange  for  a  service :  so  far 
as  regards  you  the  account  is  settled.  But  I  am  now 
just  in  the  position  you  were  before.  It  is  I  now  who 
have  done  a  service  to  society  in  your  person.  It  is  I 
who  have  become  its  creditor  for  the  value  of  the  work 
which  I  have  done  for  you,  and  which  I  could  devote  to 
myself.  It  is  into  my  hands  therefore  that  this  title  of 
credit  should  pass,  the  witness  and  the  proof  of  this 
social  debt." 

Now,  these  are  striking  and  picturesque  expressions 
of  the  universal  acceptability  of  money.  But  Mr. 
McLeod  has  proceeded  to  deal  with  them  as  if  literally 
true,  and  issues  from  his  discussion  of  the  subject  with 
the  strange  statement  that  "Money  is  the  representative 
of  debt"  [Econ.  Phil.,  i,  198],  adding  that  "where  there 
is  no  debt,  there  can  be  no  currency"  [p.  196],  and  at 
last  formulates  his  definition  of  money  as  "Any  eco- 
nomic quantity  which  a  debtor  can  by  law  compel  his 
creditor  to  take  in  discharge  of  a  debt."1 — [Ibid.,  276.] 

1  Again,  "  Among  all  civilized  nations,  gold  or  silver  bullion  is  the 
acknowledged  representative  of  debt,"  [ii,  370] — "the  symbol  of 
debt."— [Ibid.] 

He  denies  that  money  is  an  interposed  (or  as  he  terms  it,  an  inter- 
mediate) commodity.  "  It  is  the  essential  quality  of  currency  that  it 
is  a  general  charge  of  debt  upon  the  person  of  the  debtor,  or  obligant, 


28  MONEY. 

Of  which  it  may  be  enough  at  the  present  time  to  say, 
that  the  perfect  form  of  money  would  be  one  which  the 
creditor  would  be  as  desirous  of  receiving  as  the  debtor 
could  wish  him  to  be,  and  thus  the  element  of  legal  com- 
pulsion would  become  entirely  inconsequential,  and 
hence  no  proper  part  of  a  definition  ;  and,  secondly,  that 
such  money  has  in  fact  circulated,  at  one  time  or 
another,  over  pretty  much  the  whole  inhabited  world, 
not  even  the  nominal  compulsion l  of  the  creditor  exist- 
ing in  no  small  proportion  of  instances. 

There  could  scarcely  be  a  grosser  case  of  the  perver- 
sion of  the  plain  meaning  of  a  writer  than  in  the  use 
•which  Mr.  McLeod  here  makes  of  the  expressions  he 
quotes.  Dr.  Smith  intended  to  convey  this  thought :  that 
the  acceptability  of  the  guinea  was  so  complete  that  the 
tradesman,  though  free  to  sell  his  goods  or  to  withhold 
them,  would  gladly  take  it  in  exchange  for  any  equivalent 
part  of  his  stock;  and  that  the  holder  of  the  guinea 
would  therefore  be  just  as  sure  of  obtaining,  through  its 
agency,  what  he  might  desire,  as  if  he  had  an  obligation 
which  could  be  enforced  at  law.  Dr.  Smith  uses,  thus, 
the  entire  freedom  of  the  tradesman  to  show  more  strik- 
ingly the  universal  purchasing  power  of  money.  Mr. 
McLeod  twists  this  around,  with  what  violence  it  is  need- 
less to  say,  to  make  it  fit  into  his  proposition  that  it  is 
of  the  essence  of  money  that  the  creditor  should  be 
obliged  by  law  to  receive  it. 

and  is  not  a  title  to  any  specific  or  particular  articles." — [i,  206.]  "  In 
all  cases  whatever,  it  involves  the  idea  of  personal  liability."  "  This 
distinction  is  of  the  utmost  importance  and  it  seems  to  show  /that  the 
transferability  from  hand  to  hand  is  not  the  fundamental  conception 
of  a  currency." 

1  "  Our  paper  is  of  value  in  commerce,  because  in  law  it  is  of 
none;  it  is  powerful  on 'Change,  because  in  Westminster  Hall  it  is 
'mpotent." — [Burke,  French  Revolution.] 


THE  ELEMENTS  OF  MONEY.  29 

Even  Prof.  Price,  whose  conception  of  the  primitive 
function  of  money  is  very  strong  and  clear,  makes  use  of 
an  unfortunate  mode  of  expression  regarding  it. 

He  says,  speaking  of  money,  as  compared  with  bank- 
notes, bills  of  exchange,  promissory  notes,  etc. :  "  The 
distinction  I  would  suggest  would  place  coin  in  a  class  by 
itself,  and  would  group  in  a  second  and  collateral  class 
all  the  other  instruments  of  exchange.  The  two  classes 
of  the  instruments  of  exchange  would  then  be  guaran- 
tees by  a  commodity  and  guarantees  by  account.  The 
basis  of  this  division  is  the  fact  that  coin  constitutes  an 
actual  payment." — [Principles  of  Currency,  p.  177.]  But, 
if  coin  constitutes  an  actual  payment,  why  call  it  a  guar- 
antee at  all  ? 

I  must  suppose  Prof.  Price's  reason  in  so  doing  to  be 
that  this  form  of  statement  best  consists  with  the  propo- 
sition upon  which  his  theory  of  the  exchanges  of  modern 
industrial  society  is  built  up,  that  money  is  an  instru- 
ment for  the  transfer  of  debts — of  which  we  shall  inquire 
more  hereafter ;  but,  surely,  in  the  view  we  have  obtained 
of  the  Money-function  in  primitive  industrial  society,  and 
in  view  of  Prof.  Price's  admission  that  coin  constitutes 
an  actual  payment,  the  use  of  the  word  guarantees  is  of 
very  doubtful  propriety. 

If  I  have  parted  voluntarily  with  the  fruit  of  my  labor 
and  received  therefor  the  fruit  of  another  man's  labor — 
gold — being  "an  actual  payment,"  it  is  not  easy  to  see 
what  further  is  guaranteed  me,  or  who  should  guarantee 
me  anything.  It  is  true  that  with  the  gold  I  expect  to 
be  able  to  obtain,  at  any  time,  an  equivalent  portion  of 
the  product  of  any  other  man  in  the  community;  and 
this  expectation  constitutes  my  reason  for  being  willing 
to  receive  it;  and  everybody's  willingness,  on  similar 
grounds,  to  receive  it,  constitutes  it  money ;  but  if  we  go 


30  MONET. 

far  enough  back,  we  note  that  when  I  produced  the  arti- 
cle with  which  I  obtained  this  money,  I  probably  did  so 
not  because  I  wanted  that  specific  article  (my  parting 
with  it  would  seem  to  be  a  proof  of  that),  but  in  the  ex- 
pectation that  with  it  I  could  obtain  the  money,  with 
which,  in  turn,  I  could  obtain  the  particular  articles  I 
should  wish  to  consume.  If,  then,  the  money  which  the 
tailor  receives  for  his  coat  is  a  guarantee  (that  he  will 
receive  from  other  members  of  the  industrial  community 
that  which  his  personal  wants  demand),  the  coat  itself 
was  a  guarantee.  With  his  labor  he  gets  the  coat ;  with 
the  coat  he  gets  the  money;  with  the  money  he  gets 
bread  and  meat  for  his  family.  If  the  money  was  a  guar- 
antee for  bread  and  meat  in  this  case,  so  was  the  coat  a 
guarantee  for  the  money. 

At  the  same  time,  it  is  well  to  enforce  strongly  the 
thought  that  'men  take  money  with  the  expectation  of 
parting  with  it;  that  this  is  the  use  to  which  they  mean 
to  put  it,  and  it  is  for  this  reason  they  receive  it ;  that 
the  real  object  is  something  other  and  further  on ;  and 
that  money  is  always  truly  a  medium,  a  means  to  an  end. 

In  this  view,  and  anticipating  the  adoption  of  gold  as 
money  and  its  coinage  for  higher  convenience,  we  can 
fully  assent  to  these  words  of  Prof.  Price  : 

"  Gold,  in  the  form  of  money  or  coin,  is  simply  a  com- 
modity, employed  for  bartering,  as  a  ship  for  carrying, 
or  a  plow  for  farming.  .  .  .  It  is  not  sought  for  its 
own  sake,  as  an  article  of  consumption,  but  purely  as  a 
machine.  It  is  wealth  only  in  the  identical  sense  that 
a  cart  is;  for  its  action  is  very  similar  to  a  cart's;  it 
fetches  for  its  owner  the  things  he  is  in  want  of.  .  .  . 

"It  is  nothing  but  machinery  and  must  never  be  re- 
garded as  valuable,  except  for  the  work  it  performs,  so 
long  as  it  remains  in  the  state  of  coin.  It  can  be  con- 


THE  ELEMENTS  OF  MONEY.  31 

* 

verted  at  pleasure  into  an  end,  into  an  article  of  con- 
sumption, by  being  sold  as  metal ;  till  then  it  is  a  mere 
tool,  and  wealth  only  in  the  sense  that  tools  are  wealth. 
Its  specific  worth,  the  work  for  which  money  is  made,  is 
to  supersede  single  by  double  barter;  for  the  exchanges 
which  are  indispensable  to  civilized  life  could  not  be 
carried  on  by  direct  barter.  Selling  is  the  first  half  of 
double  barter ;  the  second  half  is  obtained  when  the  coin 
got  by  the  sale  is  itself  sold  for  something  else.  When- 
ever gold  buys,  it  is  also  itself  sold.  The  goods  and  the 
gold  fare  exactly  alike  in  every  sale  and  every  purchase. 
Men  take  money  in  selling  solely  in  order  to  sell  that 
money  again  in  buying." — [Principles  of  Currency,  p.  65.] 


Looking  at  the  history  of  money,  we  notice  that  two 
conditions,  now  united  and  now  separated,  have  served 
to  give  to  a  considerable  number  of  commodities  a  local 
and  temporary  acceptance,  in  the  degree  necessary  to 
bring  them  into  use  as  money. 

The  first  is  the  general  consumption  of  the  article 
throughout  the  community.  Thus,  in  many  countries 
the  staple  cereal  crop  has  come  into  use  as  money.  How- 
ever inconvenient  in  other  respects,  the  fact  that  every 
family  had  occasion,  during  the  year,  to  use  considerable 
portions  of  it,  has  often  given  to  such  a  commodity  a  good 
degree  of  currency.  Wheat,  corn  and  rye,  have  exten- 
sively fulfilled  this  office.  Cattle,  also,  were  used  as 
money  from  the  earliest  days.  With  the  Greeks  of  the 
Homeric  period,  oxen  served  as  the  medium  of  exchange ; 
and  after  the  abandonment  of  Britain  by  the  Romans 
we  find  the  inhabitants,  in  the  scarcity  of  coin,  re- 
turning to  the  use  of  "living  money,"  especially  in 
Scotland  and  Wales.  "It  is  very  possible,"  says  Sir 


32  MONEY. 

Henry  Maine,1  "that  kine  were  first  exclusively  valued 
for  their  flesh  and  milk ;  but  it  is  clear  that,  in  very  early 
times,  a  distinct  and  special  importance  belonged  to 
them  as  the  instrument  or  medium  of  exchange."  The 
fact  of  general  use  made  copper  skewers2  once  good 
money  in  Greece  ;  and  the  many  adaptations  of  iron  have 
given  it  currency  in  countries  and  in  ages. when  it  was 
not  so  plentiful  that  its  weight,  for  a  limited  value,  be- 
came embarrassing. 

But  even  more  than  the  fact  of  general  consumption  at 
home,  the  fact  that  an  article  forms  the  staple  export  of 
a  region  gives  it  acceptability  for  the  purposes  of  an  "  in- 
terposed commodity."  Thus  in  the  early  colonial  days, 
we  find  tobacco  in  Virginia  and  Maryland,  and  rice3  in 
Carolina,  constituting  the  ordinary  money  of  the  people  ; 
and  they  served  this  purpose  reasonably  well.  At  every 
country-store,  tobacco  or  rice  was  always  freely  taken  ; 
every  week  or  month  the  storekeeper  sent  his  stock  down 
to  the  seaboard,  where  his  wagons  were  loaded  with  West 
India  goods,  hardware,  etc.,  for  the  planters'  use.  The 
fact  that  these  articles  of  produce  were  always  and  freely 
received  at  the  country-store,  gave  them  a  high  degree 
of  acceptability  in  all  the  ordinary  transactions  of  ex- 
change. Even  professional  fees  and  salaries  were  paid 
in  rice  and  tobacco.  For  a  similar  reason,  dried  cod 
were,  during  the  same  period,  used  in  Newfoundland  as 

1  Early  History  of  Institutions,  p.  149. 

2  Adam  Smith  speaks  of  a  village  in  Scotland  in  his  day,  where 
nails  were  used  as  money.     The  general  use  of  bullets,  in  the  chase 
and  in  warfare  against  the  Indians,  made  them  good  "change"  in 
the  early  days  of  New  England. 

3  At  Porto  Novo,  on  the  Coromandel  shore,  accounts  are  kept  in 
"  collums  "  of  paddy,  i.  e.,  rice  in  the  husk. — [Milburn,  Oriental  Com- 
merce, 213.] 


THE  ELEMENTS  OF  MONEY.  33 

money,  and  sugar  in  the  West  Indies.  Tea  is  still  used 
in  the  settlement  of  transactions  at  the  great  Russian 
fairs,  and  small  compressed  blocks  of  that  article  still 
circulate  in  China,  as,  according  to  Mr.  McLeod,  dates, 
in  definite  measures,  do  in  the  oases  of  Africa.  Furs 
have  always  been  a  good  money,  in  regions  from  which 
they  are  exported.  Thus  the  Massachusetts  Court  of 
Assistants,  in  1631,  ordered  that  corn  at  the  usual  rates 
should  pass  for  payment  of  all  debts,  unless  money  or 
beaver1  were  expressly  named  in  the  contract.  Furs 
play  an  important  part  in  the  history  of  Russian  money. 


Among  the  material  properties  fitting  articles  for  use 
as  money,  we  note  the  following : 

Portability. — Doubtless  one  reason  for  the  preference 
given  to  cattle  among  the  ancients  was  the  fact  that  they 
would  carry  themselves,  instead  of  requiring  to  be  car- 
ried, like  most  other  forms  of  property,  whenever  the 
chieftain  had  occasion  to  move  his  abode,  for  purposes 
of  gain,  or  to  avoid  a  threatened  attack.  And  of  articles 
which  cannot  be  classed  as  "  living  money,"  preference 
will  naturally  be  given,  in  any  state  of  society,  to  such 
as  contain  much  value  in  small  bulk,  and  which  can 
thus  be  easily  transported,  and  for  the  same  reason, 
easily  stored  and  concealed. 

A  second  desirable  quality  is  uniformity.  In  this,  the 
living  money  referred  to  was  particularly  deficient.  If 
Glaucus  stipulated,  in  advance,  to  give  100  oxen  for  his 


1  "  Of  all  the  articles,  the  products  of  the  country,  which  our  fa- 
thers used  as  currency,  that  which  was  most  available  and  convenient 
was  the  skin  of  the  beaver.  Furs  were  in  demand  in  Europe,  and 
could  always,  without  much  loss,  be  converted  into  coin  or  its'  equiv- 
alent."— [Bronson.  Connecticut  Currency,  p.  7.] 

3* 


34  MONEY. 

golden  armor,  there  is  too  much  reason  to  fear  that  it 
was  a  sorry  lot  of  "  lean  kine  "  that  were  turned  in  for 
payment.  The  public  records  of  the  Colony  of  Massa- 
chusetts bear  amusing  testimony  to  the  depravity  of 
human  nature,  in  culling  out  the  worst  of  the  flock  in 
settlement  of  taxes ;  and  no  one  who  is  familiar  with  the 
frontier  life  of  our  day  but  has  had  occasion  to  be  as- 
tonished at  the  capabilities  of  some  of  the  animal  species, 
in  the  way  of  furnishing  gaunt  and  puny  specimens  for 
consumption  by  the  "  wards  of  the  nation."  Not  a  few 
articles,  otherwise  reasonably  well  suited  to  use  as 
money,  fail  in  this  important  respect  of  uniformity  of 
size  and  quality. 

Again,  it  is  desirable  that  the  article  which  is  to  be 
used  as  money  should  be  such  as  will  cost  little  or  noth- 
ing for  keeping,  and  will  not  readily  deteriorate.  The 
mention  of  the  first  condition  reveals  how  poorly  fitted 
cattle  are  for  use  as  money l  in  any  but  a  pastoral  state 
of  society  (where  they,  in  fact,  keep  themselves),  owing 
to  their  remarkable  physiological  property  of  being  able 
to  "  eat  their  heads  off,"  every  little  while.  Especially 
did  the  good  people  of  Massachusetts  find  cattle  un- 
suited  for  receipt  into  the  public  treasury.  It  is  as- 
tonishing how  much  a  cow  can  eat  without  either  giving 
milk  or  gaining  flesh,  if  she  belongs  to  a  government  or 
a  corporation. 

Liability  to  deterioration  is  so  far  common  to  most 
forms  of  wealth  as  to  leave  but  few  without  serious  dis- 
advantages in  their  use  as  money.  Rust,  insects,  excess- 
ive moisture,  undue  heating,  even  mere  exposure  to  the 
air,  work  mischief  more  or  less  rapidly  to  most  of  the 

1  "  Usage  qui  suppose  la  possession  facile  de  riches  paturages." — 
[Roscher,  Wolowski's  translation.  §  118.] 


THE  ELEMENTS  OF  MONEY.  35 

treasures  of  earth.  In  the  degree,  therefore,  in  which 
any  article  is  subject  to  waste  or  deterioration,  is  it  un- 
fitted to  serve  as  money.  This,  however,  was  not  the 
view  of  Peter  Martyr,  who,  contemplating  the  bags  of 
cacao  used  by  the  early  Mexicans  in  their  exchanges,  was 
led  to  exclaim,  "Blessed  money!  which  exempts  its 
possessors  from  avarice,  since  it  cannot  be  long  hoarded 
or  hidden  under  ground!"  In  his  cheerful  optimism 
this  writer  deserves  to  take  rank,  at  least  approxi- 
mately, with  those  philosophers  of  to-day  who,  after  dis- 
covering all  sorts  of  good  things  about  our  greenbacks, 
have  declared  it  to  be  their  crowning  excellence  that  no 
other  nation  can,  or  will,  take  them  from  us. 

Still  another  thing  which  is  to  be  desired  in  that  com- 
modity which  is  to  serve  as  money,  is  that  it  shall  be 
susceptible  of  division,  according  to  the  ever  varying 
necessities  of  exchange,  without  any  important  loss  of  its 
own  utility  thereby.  Grain,  and  not  a  few  others  of  the 
articles  which  we  have  referred  to  as  used  for  money,  in 
one  country  or  another,  at  one  period  or  another,  have 
possessed  this  property.  The  lack  of  it  would  prove  a 
fatal  objection  in  the  case  of  many  commodities  in 
other  ways  well  adapted  to  such  uses.  It  was  reported 
by  some  early  travelers  that  the  Tartars,  when  in  want 
of  meat,  would  take  a  steak  from  the  living  animal,  and 
by  some  means  close  the  wound  till  the  exigencies  of  the 
larder  demanded  another  cut  off  the  flank.  If  the  Tar- 
tars ever  had  this  knack  of  serving  up  beef  as  occasion 
required,  other  peoples  have  not  derived  it  from  them, 
but  have  found  it  necessary  to  deal  with  the  living 
animal  as  a  whole.  This  difficulty  or  impossibility  of  a 
division  without  loss,  clearly  would  throw  out  many 
commodities  from  possible  use  as  money.  The  tailor, 
while  he  could  put  on  a  patch  of  any  required  dimen- 


36  MONET. 

sions,  corresponding  to  a  loaf  of  any  size  of  the  baker's 
bread,  could  not  well  split  a  coat  down  the  back  to  make 
change,  or  sell  one  pantaloon  without  its  fellow. 

So  much  for  money  as  a  medium  of  exchange ;  but 
further,  it  is  evident  that,  to  enable  an  article  to  per- 
form the  function  of  a  standard  for  deferred  payments, 
a  certain  steadiness  in-value  is  essential.  That  men  may 
safely  promise  to  pay  down,  at  a  future  date,  definite 
quantities  of  a  specific  commodity,  it  is  highly  important 
that  a  given  quantity  of  that  commodity  shall  then  rep- 
resent approximately  the  same  cost  of  production  as  at 
the  time  the  bargain  is  made.  Otherwise,  grave  un- 
certainty will  be  introduced  into  every  contract,  with  the 
strong  probability  that  one  or  the  other  party  will  suffer 
serious  loss,  to  the  discouragement  of  industry  and 
trade. 

Thus,  through  the  capriciousness  of  the  seasons,  a 
bushel  of  wheat  may  represent,  in  one  year,  an  amount 
of  labor  greater  or  less  by  fifty  per  cent,  than  in  the 
preceding  or  the  succeeding  year.  For  the  payment  of 
rents,  through  terms  of  years,  the  lessor  may  perhaps 
take  the  chance  of  good  years  with  bad  (though  a  long 
succession  of  bad  or  of  good  harvests  is  a  not  unfamiliar 
occurrence);  but  ordinary  commercial  transactions  could 
not  be  carried  on  amid  the  uncertainty  as  to  the  value 
of  payments  to  be  made  or  received,  which  would  be 
involved  in  the  use  of  an  article  varying  so  greatly  in 
cost  of  production  within  a  brief  term. 


Such  being  the  material  properties  most  important  in 
any  article  which  is  to  be  used  as  money,  we  note  that 
the  metals  have  been  found  to  possess  them  in  a  higher 
degree  than  any  other  considerable  class  of  commodities. 


THE  METALS  AS  MONEY.  37 

Iron,  lead,  tin  or  copper,  early  became  the  money  of 
nearly  all  the  nations  whose  history  we  know.  Of  these 
the  first1  possesses  perhaps  the  fewest  advantages ;  yet 
when  we  compare  it  with  cattle  or  wheat,  we  find  ample 
reason  for  the  preference  given  to  it,  over  them,  in  use 
as  money,  in  very  early  times.  It  is,  indeed,  subject  to 
deterioration  by  exposure  to  the  atmosphere ;  but  it  has 
a  life  of  many  years,  even  in  the  worst  conditions.  This 
fact  gives  it  comparative  stability  of  value.  In  early 
times,  moreover,  iron  possessed  considerable  value  for 
its  bulk.  The  art  of  mining  being  in  its  infancy,  a  com- 
paratively small  amount  of  the  metal  represented  the 
labor  of  days  ;2  while  its  numerous  uses  in  the  economy 
of  life,  whether  civilized  or  savage,  contributed  to  its 
general  acceptability  among  all  classes  and  between 
different  communities. 

Lead  was  used  as  money  both  by  the  Romans  and 
the  early  English,  and  is  still  received  in  Burmah,  by 
weight,  in  small  payments.3 

Tin  served  the  Mexicans4  as  money,  even  after  gold 
and  silver  were  known  among  them,  and  was  in  extensive 
use  for  personal  ornament  and  in  the  arts  of  decoration. 
It  was  long  and  extensively  used  as  money  in  Sweden, 
and  is  still  so  employed  among  the  Chinese,  along  the 
shores  of  the  Malay  Peninsula,  and  in  Prince  of  Wales 
Island. 

But  of  the  metals  named,  copper  has  the  greatest  im- 

1  The  money  of  Lacedaemon  was  of  iron ;  Sweden  was  reduced  to 
iron  money  during  the  wars  of  Charles  XII ;  money  of  this  metal  is 
still  used  by  the  inhabitants  of  Senegambia. 

2  Lead  was  cheaper  than  iron,  in  England,  down  to  the  Great 
Plague. — [Rogers,  Hist.  Agriculture  and  Prices,  i,  599.] 

3  E.  Seyd,  Bullion  and  the  Foreign  Exchanges,  p.  368. 

4  Prescott,  Conquest  of  Mexico,  ii,  140. 

4 


38  MONEY. 

portance  in  the  history  of  money.  From  its  higher  cost 
of  production,  it  very  generally  superseded  iron,  as  the 
latter  came,  in  the  progress  of  the  mining  art,  to  possess 
a  value  for  its  bulk  unsuited  to  the  office  of  exchange ; 
while  silver  was  yet  too  rare  and  precious  for  the  use 
of  the  humbler  classes.  During  the  silver  famine  of  the 
Middle  Ages  copper  .again  returned  to  be  the  principal 
and  most  valuable  money  in  common  circulation,  silver 
and  gold  being  found  only  in  the  cabinets  of  nobles  and 
the  caskets  of  bankers.  The  employment  of  copper  as 
an  actual  money  has  continued  down  even  to  our  day, 
though  we  have  seen  it  reduced  to  the  less  honorable 
office  of  small  change,  and  even,  within  the  last  few  years, 
degraded  to  a  mere  ingredient  of  coin-metal,  as  in 
France,  or  dispensed  with  entirely  in  favor  of  the  cleaner 
nickel,  as  in  the  United  States. 

SILVEK  AND   GOLD. 

Two  metals,  however,  gold  and  silver,  have  enjoyed  a 
pre-eminence  in  the  history  of  Money,  which  has  earned 
for  them  the  proud  title,  the  Precious  Metals. 

Not  that  they  are  the  most  costly  of  all;  several1 
metals  surpass  both  of  them  in  this  respect ;  but  this  is 
true  only  of  metals  found  in  extremely  limited  quantities. 

Of  the  two,  silver  first  came  to  be  used  as  money. 
"We  hear  of  it  in  the  early  history  of  the  Hebrew  race. 
We  find  it  coined  among  the  Greeks  and  Romans  while, 
for  long  ages,  gold  remained  merely  treasure,  devoted 
almost  exclusively  to  regal  or  sacerdotal  uses. 

"  Silver,"  says  Mr.  Seyd,2  "ranks  next  after  gold,  in  the 

1  Eight,  I  believe.     Vanadium  I  have  seen  quoted  at  more  than 
eight  times  its  weight  in  gold. 

2  Bullion  and  the  Foreign  Exchanges,  pp.  111-5.     Mr.  Seyd  gives 
an  interesting  description  of  the  properties  of  silver. 


THE  METALS  AS  MONEY.  39 

class  of  noble  metals,  though  platinum  and  its  kindred 
metals  are  less  liable  to  alteration,  and  less  subject  to 
the  influence  of  chemical  agents.  But  silver,  on  the 
other  hand,  possesses  many  most  valuable  properties 
which  the  metals  of  the  platinum  group  lack  altogether." 

The  extreme  beauty  of  silver,  and  its  numerous  uses 
in  the  economy  of  life  make  it  an  object  of  admiration 
and  desire  among  people  in  all  degrees  of  social  ad- 
vancement. The  brightest  of  all  metals,  its  surpassing 
brilliancy  almost  justifies  the  preference  expressed  by 
the  barefoot  boy  of  Sir  Walter  Scott,  "  Give  me  the 
white  money,  please."  Practically  imperishable  (since 
the  sulphide  which  forms  over  silver  in  impure  air,  veil- 
ing its  beauty,  protects  it  from  further  action  of  the  at- 
mosphere), a  high  degree  of  steadiness  in  value  is  se- 
cured by  the  large  volume  of  existing  metal  in  compari- 
son with  the  results  of  current  production.  Easily 
fusible,  highly  ductile,  silver  would  have  filled  our  ut- 
most conception  of  a  money -material  had  not  the  earth 
yielded  one  transcendent  metallic  product,  in  compari- 
son with  which  even  silver  fades  from  desire. 

In  Oriental  worship,  the  temple  of  the  Moon  is  inlaid 
with  Silver ;  the  temple  of  the  Sun  is  resplendent  with 
Gold. 

The  advantages  which  this  royal  metal  possesses  for 
use  as  money  have  been  so  often  illustrated,  and  have 
been  so  far  intimated  in  what  has  been  shown  of  the 
defects  of  other  commodities  and  even  of  the  other 
metals,  that  it  will  not  be  necessary  to  dwell  upon  them 
here  at  length. 

The  practical  indestructibility  of  gold — for  it  can  only 
be  attacked  by  agents  which  have  to  be  specially  pre- 
pared for  the  purpose — at  once  gives  assurance  to  him 
who  receives  it  that  he  can  suffer  no  loss  from  natural 


40  MONET. 

causes  through  taking  it,  and  imparts  to  it,  when  used 
as  money,  the  highest  attainable  steadiness  in  value. 

"  The  price  of  all  metals,"  says  Adam  Smith,  "  though 
liable  to  slow  and  gradual  variations,  varies  less  from 
year  to  year  than  that  of  almost  any  other  part  of  the 
rude  produce  of  land;  and  the  price  of  the  precious 
metals  is  even  less  -liable  to  sudden  variations  than  that 
of  the  coarse  ones. 

"  The  durableness  of  metals  is  the  foundation  of  this 
extraordinary  steadiness  of  price.1  The  corn  which  was 
brought  to  market  last  year  will  be  all  or  almost  all 
consumed  long  before  the  end  of  this  year.  But  some 
part  of  the  iron  which  was  brought  from  the  mine  two 
or  three  hundred  years  ago  may  be  still  in  use,  and 
perhaps  some  part  of  the  gold  which  was  brought  from 
'  it  two  or  three  thousand  years  ago.  The  different 
masses  of  corn  which  in  different  years  must  supply  the 
consumption  of  the  world  will  always  be  nearly  in  pro- 
portion to  the  respective  produce  of  those  different  years. 

"  But  the  proportion  between  the  different  masses  of 
iron  which  may  be  in  use  in  two  different  years  will  be 
very  little  affected  by  any  accidental  difference  in  the 
produce  of  the  iron  mines  of  those  two  years ;  and  the 
proportion  between  the  masses  of  gold  will  be  still  less 
affected  by  any  such  difference  in  the  produce  of  the 
gold  mines.  Though  the  product  of  a  greater  part  of 
metallic  mines  therefore  varies  perhaps  still  more  from 
year  to  year  than  that  of  the  greater  part  of  corn-fields, 
those  variations  have  not  the  same  effect  upon  the  price 

1  "  Tandis  que  des  moissons  plus  ou  moins  abondantes  font  rapide- 
ment  osciller  le  prix  du  ble,  parce  que  la  portion  conservee  n'atteint 
pas  le  chiffre  d'une  seule  recolte,  les  alluvions  d'or  et  d' argent  n'ex- 
priment  qu'  une  fraction  minime  des  existences  ne  me'taux  precieux." 
— [Wolowski,  L'Or  et  1' Argent,  11.] 


THE  METALS  AS  MONEY.  41 

of  the  one  species  of  commodities  as  upon  that  of  the 
othe*."— [Wealth  of  Nations,  i,  221.] 

The  fusibility,  ductility  and  malleability  of  gold  form 
a  group  of  properties  of  the  highest  importance,  as  we 
shall  have  occasion  farther  to  note  when  we  come  to 
speak  of  coinage,  while  they  add  vastly  to  its  uses  in 
the  arts  industrial  and  decorative.  One  cubic  inch  of 
gold,  Mr.  Seyd  tells  us,  may  be  drawn  out  to  cover  four- 
teen millions  of  square  inches.  Gold  may  be  refined 
and  alloyed,  united  and  divided,  with  absolutely  no  loss 
of  the  pure  metal1  in  the  repeated  process.  Practically 
a  slight  loss  is  experienced  in  a  corresponding  treatment 
of  silver.2  Silver,  on  the  other  hand,  has  a  certain  ad- 
vantage over  gold  in  respect  to  tenacity. 

"  The  compendious  value  of  gold,"  to  use  Mr.  Jacob's 
phrase,  allows  a  vast  amount  of  purchasing  power  to  be 
concentrated,  for  conveyance  or  for  concealment,  in 
small  bulk.  In  his  memoir  upon  the  Production  of  Gold 
and  Silver,  Humboldt  states  that  at  then  existing  prices, 
one  kilogram  of  gold  would  purchase  1611  kilograms  of 
copper,  9700  of  iron,  20,794  of  wheat,  27,655  of  rye  or 
31,717  of  barley. 

But  while  gold  is  thus  precious,  it  is  found  in  sufficient 
quantity  to  allow  of  its  convenient  use  as  an  every-day 
medium  of  exchange  in  all  highly  advanced  industrial 
communities.  Were  gold  as  costly  as  vanadium,  the 
piece  in  which  a  workman  received  his  day's  wages  might, 

1  "  Si,  par  rapport  a  la  societe,  la  monnaie  peut  a  bon  droit  etre 
assimilee  aux  machines,  cette  machine-la  se  distingue  de  toutes  les 
autres,  en  ce  que  les  rnatieres  dont  elle  est  faite  sont  tres  precieuses 
et  possedent,  a  tres-peu  pres,  la  meme  valeur  que  la  machine  toute 
confectionnee.  Le  bois,  la  fonte,  le  fer,  le  cuivre,  qui  entrent  dans 
la  composition  d'un  mecanisme  quelconque,  si  vous  brisez  celuici,  per- 
dent  beaucoup  de  ce  qu'ils  valaient  ajustes  ensemble." — [Chevalier, 
La  Monnaie,  p.  591.] 

2  Jacob,  Inquiry  into  the  Precious  Metals,  p.  166. 


42  MONEY. 

as  Mr.  McAdam  says,  be  carried  off  and  lost  through  an 
inadvertent  sneeze,  and  would  habitually  require  to  be 
handled  with  delicate  pincers.  While  it  is  true  that  the 
value  of  any  commodity  varies  with  the  quantity  in 
which  it  is  supplied;  and  that,  were  there  less  gold, 
each  portion  would  bear  a  higher  purchasing  power,  and 
thus,  theoretically,  all  the  commodities  of  the  world's 
commerce  might  be  exchanged  through  the  agency  of 
the  gold  which  is  found  in  a  half-eagle  ;  yet,  practically, 
it  is  of  consequence  that  the  metal  or  metals  employed, 
while  possessing  great  value  for  a  given  bulk  and  weight, 
should  be  found  in  quantity  to  afford  pieces  of  such 
purity  as  to  remain  clean  and  bright,  and  of  such  size  as 
to  be  conveniently  handled  and  carried  about,  in  num- 
ber sufficient  to  achieve  the  highest  convenience  of  ex- 
change, according  to  the  spending-habits  of  the  com- 
munity, habits  which  will  vary  much  with  the  social 
condition  of  the  people,  the  ratios  obtaining  in  the  dis- 
tribution of  wealth  among  the  several  classes,  the  facili- 
ties of  intercourse,  the  characteristics  of  the  local  in- 
dustry (as  when  a  community  produces  mainly  that 
which  itself  wishes  to  consume,  or  the  reverse),  etc.,  etc. 
It  is  evident  that  in  every  varying  condition  of  society 
and  industry  there  must  be,  between  the  body  of  poten- 
tial purchasers — those,  that  is,  who  have  occasion  and 
the  means  to  buy  goods  offered  in  the  markets — and  the 
body  of  coins  or  money-pieces  of  a  given  size,  a  numer- 
ical proportion  which  best  answers  the  requirements  of 
the  community ;  and  that,  as  this  proportion  is  departed 
from,  either  in  the  way  of  excess  or  of  deficiency  in  the 
number  of  coins  or  money-pieces,  through  using  a  ma- 
terial too  cheap  or  too  costly,  the  convenience  of  ex- 
change will  be  impaired,  very  slightly  indeed  at  first, 
and  perhaps  for  a  long  time  not  appreciably,  but  to  the 
certain  annoyance  and  obstruction  of  trade  and  industry 


THE  METALS  AS  MONEY.  43 

should  this  course  of  things  proceed  to  extremity  in 
either  direction.  The  iron  of  the  Lacedaemonians  would 
be  an  impossible  money  to-day.  Copper,  an  ounce  of 
which,  speaking  roughly,  is  worth  a  pound  of  iron,  has 
become  too  bulky  to  serve  as  the  sole,  or  the  most  valu- 
able, money  of  highly  civilized  countries,  and  is  hence 
remitted  to  those  less  advanced,  or  is  confined  to  use  as 
the  smallest  of  change.  And  within  the  present  decade 
several  nations  have  resorted  for  the  first  time,  upon  an 
extensive  scale,  to  the  coinage  of  gold,  on  the  plea  that 
silver  has  become  too  cheap  a  material  for  the  common 
coin  of  commerce. 

We  have  seen  that  the  precious  metals  derive  a  remark- 
able degree  of  steadiness  in  value  through  their  high  de- 
gree of  durability,  from  which  it  results  that  great  changes 
in  the  amount  of  current  production  have  only  a  slight 
effect  upon  the  total  volume  in  the  possession  of  man- 
kind. We  have  now  to  note  in  closing,  that  money  of 
gold  and  silver  receives  an  additional  support  in  main- 
taining its  value  uniform,  through  the  rapid  extension  of 
demand  for  the  use  of  these  metals  in  the  arts,1  which  is 
the  sure  concomitant  of  an  increase  of  supply  threaten- 
ing to  reduce  their  power  in  exchange. 

1  Looking  to  this  demand  for  gold  and  silver  from  the  arts,  indus- 
trial or  decorative,  Prof.  N.  W.  Senior,  in  his  lectures  on  "  The  Cost 
of  Obtaining  Money,"  declares  that  "the  value  of  the  precious  metals, 
as  money,  must  depend  ultimately  on  their  value  as  materials  of 
jewelry  and  plate,  since,  if  they  were  not  used  as  commodities  they 
could  not  circulate  as  money."  [In  the  Edinburgh  Review  of  July, 
1843,  Prof.  Senior  wrote:  "  The  primary  cause  of  the  utility  of  gold 
is,  of  course,  its  use  as  the  material  of  plate ;  the  secondary  cause  is 
its  use  as  money."]  Prof.  Senior  appears  here  to  be  in  error.  The 
value  of  money  (with  a  given  supply)  is  governed  by  the  aggregate 
demand  for  it  from  all  sources,  both  for  use  in  the  arts  and  for  ser- 
vice as  money. 


CHAPTEK  III. 

THE  TERRITORIAL  DISTEIBUTION  OF  MONEY. 

WE  have  noted  the  material  properties  which  have 
given  to  gold  and  silver  their  special  fitness  for  use  as 
money.  In  part,  these  properties  may  be  said  to  con- 
tribute to  that  universal  acceptability  which  is  the  prime 
condition  of  a  medium  of  exchange.  In  part,  they  may 
be  regarded  as  affording  advantages,  especially  in  the 
way  of  coinage,  which  are  independent  of  and  additional 
to  that  acceptability,  since  we  know  that  the  passion  for 
gold  and  silver  appeared,  to  curse  or  to  bless  mankind, 
before  the  art  of  coinage  was  known.  But  while  the  uni- 
versal acceptability  of  these  metals  has  fitted  them  to 
perform  their  great  service  to  trade,  and  through  trade  to 
production,  a  false  apprehension  of  the  advantages  of 
their  possession  has  led  peoples,  philosophers  and  states- 
men into  errors  of  the  gravest  practical  consequences. 

The  so-called  Mercantile  Theor^,  which,  nearly  down 
to  the  present  century,  exercised  undisputed  sway  over 
the  councils  of  every  commercial  state,  the  influence  of 
which  survives  in  some  measure  to  our  day,  defying  the 
power  of  reason,  is  a  growth  out  of  this  root. 

"Midas,"  says  Mr.  McLeod,  "was  the  parent  of  the 
Mercantile  System :  and  for  centuries  every  government 
in  Europe  was  imbued  with  his  ideas 


THE  MER  CANTILE  THE  OR  Y.  45 

"Midas  saw  that,  with  treasure  in  his  hand,  he  was 
wealthy, — he  could  obtain  whatever  he  wanted,  and  could 
command  the  services  of  others.  He  quite  forgot  that 
gold  was  only  of  use  while  it  could  command  something  else, 
and  that  if  that  something  else  were  changed  to  gold,  his 
gold  would  be  of  no  use  whatever.  Gold,  therefore,  was 
only  of  use  because  of  the  multitude  of  things  which  were 
not  gold.  The  very  same  ideas  gradually  grew  up  in 
Europe.  Sovereigns  saw  that  their  chief  power  consisted 
in  the  treasures  they  could  accumulate.  It  then  became 
a  cardinal  point  of  their  policy  to  encourage  the  importa- 
tion of  money  as  much  as  possible  and  to  prohibit  its 
export.1  From  about  the  beginning  of  the  14th  Century 
the  laws  of  nearly  every  country  in  Europe  endeavored 
to  prevent  the  export  of  money.  Statesmen  and  mer- 
chants were  all  infected  with  this  delusion,  which  was 
greatly  fostered  by  the  discovery  of  the  New  World. 
The  Spaniards,  dazzled  with  the  brilliant  prospect  of  se- 
curing the  greatest  part  of  the  wealth  in  the  world,  with- 
out labor,  imagined  that  the  well-being  of  the  country  con- 
sisted in  amassing  enormous  heaps  of  gold  and  silver. 
But  they  wholly  mistook  the  means  for  the  end,  not  dis- 
cerning that  the  precious  metals  are  only  precious  so 

1  The  usual  method  taken  by  kings  and  parliaments  to  increase  the 
stock  of  money  within  their  respective  countries  was  to  prohibit  the 
export  of  gold  and  silver,  the  penalty  not  infrequently  being  death ; 
but,  in  addition  to  this,  acts  of  the  legislature,  in  both  England  and 
Scotland,  decreed  that  merchants,  foreigners  as  well  as  natives,  should 
import  a  certain  quantity  of  coin  or  bullion  in  every  ship,  in  propor- 
tion to  the  value  of  the  other  goods,  and  should  expend  all  that  coin 
and  bullion,  with  all  the  money  received  for  their  imports,  in  purchas- 
ing the  commodities  of  the  country.  These  laws  were,  however, 
soon  repealed.  By  a  treaty  with  Sweden  cited  by  Hume,  the  Swedes 
were  permitted  to  export  English  commodities  free  of  duty,  provided 
the  price  was  paid  in  bullion. 


46  MONEY. 

long  as  they  are  used  for  setting  industry  in  motion; 
while  they  encourage  the  tilling  of  the  land — the  mother 
of  increase — or  the  building  of  ships  to  promote  the  com- 
merce of  nations,  or  plying  the  loom  to  produce  clothing 
for  mankind." — [Economical  Philosophy,  i,  50.] 

Upon  the  consequences  of  this  delusion,  to  Spain  first 
and  most  heavily,  and  to  the  other  countries  of  Europe, 
in  restraints  laid  upon  trade  and  in  wars  waged  for  a 
commercial  supremacy  which  should  enable  the  victor 
to  control  the  movement  of  the  precious  metals,  which 
had  come  to  be  regarded  as  the  true  and  sole  wealth,  it 
is  not  necessary  to  dwell. 

To  Adam  Smith  the  world  owed  its  deliverance  out  of 
the  power  of  this  monstrous  delusion,  which  had  for  cent- 
uries been  more  potent  for  evil,  perhaps,  than  any  other 
which  has  afflicted  mankind.  Dr.  Smith's  refutation  of 
the  Mercantile  Theory  will  ever  remain  the  great  monu- 
ment of  his  fame,  for  what  a  century  ago  was  the  stand- 
ing policy  of  all  the  statesmen  of  Europe,  has  now 
scarcely  an  apologist  or  defender.1 

Nothing  has  been  added  to  Adam  Smith's  great  argu- 
ment. It  has  required  no  expansion,  no  corroboration, 
no  further  illustration,  no  adaptation,  even,  to  popular 
comprehension.  At  once  and  forever,  the  Mercantile 
Theory  fell  out  of  the  intellectual  sympathy  of  mankind. 

Yet,  unfortunately,  it  has  not  wholly  lost  its  hold  upon 
the  imagination  and  the  sensibilities  of  the  masses,  and 


1  "  Even  countries  retaining  a  highly  protective  or  restrictive  sys- 
tem," says  Chevalier,  "now  allow  the  exportation  of  money."  Of 
Kussia,  however,  Mr.  Seyd  says :  "  The  exportation  of  silver  has  for 
a  long  time  been  prohibited ;  that  of  gold  is  periodically  allowed,  but 
just  now  [1868]  it  is  prohibited." — [Bullion  and  the  Foreign  Ex- 
changes, 332.] 


THE  MER  CANTILE  THE  OR  Y.  47 

even  of  the  refined  and  educated.  "There  are  few," 
says  Prof.  Cairnes,1  "even  among  professed  economists, 
who  are  free  from  the  influence  of  the  Mercantile  Theory 
of  Wealth." 

So  deeply  rooted  is  this  instinct  respecting  gold  and 
silver,  that  Prof.  Price  is  drawn  to  use  this  vigorous  lan- 
guage respecting  it :  "  The  greatest  of  commercial  delu- 
sions is  the  wonderful  apostasy  about  gold.  I  call  it 
apostasy  because  the  light  was  made  to  shine,  and  men 
willfully  shut  their  eyes  against  it.  Adam  Smith  exposed 
in  undying  words  the  emptiness  and  the  absurdity  of  that 
inveterate  fallacy  of  the  trading  world  which  has  been 
called  the  Mercantile  Theory.  Many  writers  of  great 
ability  followed  him  in  the  same  path,  and  this  famous 
theory  became  almost  a  by-word  for  ridicule.  Men  for  a 
time  were  shamed  out  of  such  a  preposterous  illusion : 
but  for  a  time  only.  Truth  in  this  region  proved  itself  to 
be  no  match  for  error ;  the  tendency  to  backslide  into  the 
old  thoughts,  into  the  old  habit  of  looking  only  at  what 
was  visible  and  on  the  surface,  was  irresistible.  Money 
buys  goods ;  with  money  debts  are  paid ;  money  opens 
shops  and  warehouses ;  loans  and  advances  are  counted 
in  money :  therefore,  money  is  the  true  riches ;  money  is 
the  one  thing  of  which  there  never  can  be  too  much; 
money  is  the  soul  and  essence  of  all  trade ;  money  is  the 
wealth  of  nations."  "I  confess,"  continues  Prof.  Price, 
"that  I  never  address  myself  to  the  examination  of  such 
language  without  some  feeling  of  humiliation :  to  have  to 
repeat  Adam  Smith's  refutation  of  the  Mercantile  The- 
^ory  to  the  whole  trading  world,  in  an  age  remarkable  for 
intellectual  activity,  is  a  spectacle  far  from  gratifying  to 
the  believers  in  the  power  of  truth  and  genius.  How 

1  Essays  in  Pol.  Econ.,  p.  98n. 


48  MONEY. 

can  one  hope  for  the  victory  of  truth,  when  an  exploded 
delusion  can  re-appear  in  such  force,  and  assert  its  mas- 
tery over  a  whole  community  ?  What  confidence  can  be 
placed  in  the  success  of  new  arguments  when  reasoning 
of  the  most  powerful  order  has  served  only  to  flash  a 
brief  outbreak  of  light,  to  be  followed  after  by  darkness 
more  universal,  more  deeply  settled  down,  than  ever?" 

The  image  with  which  this  quotation  closes  is  mani- 
festly too  strong  justly  to  represent  the  phase  of  the 
public  mind  which  Prof.  Price  deprecates.  Far  from  the 
darkness  having  become  more  universal,  more  deeply 
settled  down  after  the  lightning  flash,  the  influence  of 
the  Mercantile  Theory  was  never  so  slight  as  now.  That 
any  of  its  effects  survive  such  universal  admission  of  its 
falsity,  only  affords  another  instance  of  the  tenacity  of 
popular  prejudice  and  superstition. 


The  complaints  which  Profs.  Cairnes  and  Price  make 
respecting  the  persistence  in  popular  feeling  of  the  re- 
futed notion  that  money  is  a  means  and  not  an  end;  that 
it  is  something  more  or  other  than  a  tool  for  a  specific 
and  highly  technical  purpose,  brings  us  squarely  up 
against  the  question : 

HOW  MUCH  MONEY  DOES  AN  INDUSTRIAL  COMMUNITY  EEQUIKE? 

I  say  industrial,  instead  of  commercial,  because  I  de- 
sire strongly  to  insist  on  the  distinction  with  which  I 
started  out,  that  the  function  of  trade  is  to  allow  the  di- 
vision of  labor  to  be  carried  out  to  its  economical  maxi- 
mum ;  and  that  money  confers  a  benefit,  not  because  it 
facilitates  trade,  as  if  that  were  an  end  in  itself,  but  be- 
cause, by  facilitating  exchanges,  it  allows  the  division  of 


4  •  THE  DISTRIBUTION  OF  MONEY.  4Q 

labor  in  production  to  be  carried  as  far  as  industrial  rea- 
sons exist  for  its  extension. 

How  much  money,  then,  does  an  industrial  community 
require? 

To  be  in  a  position  to  answer  this  question,  we  must 
ascertain  the  law  of  the  distribution  of  the  precious  met- 
als. * 

Perhaps  no  doctrine  is  more  truly  entitled  to  be  called 
Bicardiaii  than  that  which  is  generally  accepted  on  this 
subject,  with  or  without  qualification,  by  the  whole  body 
of  economists.  Not  that  Mr.  Ricardo  first  conceived  the 
doctrine,  or  first  taught  it .;  but  it  may  well  be  called  his, 
on  account  of  the  breadth  of  statement  and  power  of  ex- 
pression with  which  he  advanced  it,  in  the  memorable 
pamphlet  "On  the  High  Price  of  Bullion,"  (1809),  which 
preceded,  and  in  a  certain  sense  brought  on,  the  great 
Bullion  Controversy. 

"The  precious  metals  employed  for  circulating  the 
commodities  of  the  world,  previously  to  the  establish- 
ment of  banks,  have  been  supposed  by  the  most  approved 
writers  on  political  economy  to  have  been  divided  into 
certain  proportions  among  the  different  civilized  nations 
of  the  earth,  according  to  the  state  of  their  commerce 
and  wealth,  and,  therefore,  according  to  the  number  and 
frequency  of  the  payments  which  they  had  to  perform. 
When  so  divided,  they  preserved  everywhere  the  same 
value,  and  as  each  country  had  an  equal  necessity  for  the 
quantity  actually  in  use,  there  could  be  no  temptation 
offered  to  either  for  their  importation  or  exportation. 

"  If  the  quantity  of  gold  and  silver  in  the  world  em- 
ployed as  money  were  exceedingly  small,  or  abundantly 
great,  it  would  not  in  the  least  affect  the  proportions  in 
which  they  would  be  divided  among  the  different  nations 
— the  variation  in  their  quantity  would  have  produced  no 
5 


50  MONEY. 

other  effect  than  to  make  the  commodities  for  which 
they  were  exchanged  comparatively  dear  or  cheap.  The 
smaller  quantity  of  money  would  perform  the  functions 
of  a  circulating  medium  as  well  as  the  larger." 

If,  in  the  progress  towards  wealth,  one  nation  advanced 
more  rapidly  than  the  others,  that  nation  would  require 
and  obtain  a  greater  proportion  of  the  money  of  the 
world.  Its  commerce,  its  commodities,  and  its  payments 
would  increase,  and  the  general  currency  of  the  world 
would  be  divided  according  to  the  new  proportions.  All 
countries,  therefore,  would  contribute  their  share  to  this 
effectual  demand. 

"  In  the  same  manner,  if  any  nation  wasted  part  of  its 
wealth,  or  lost  part4of  its  trade,  it  could  not  retain  the 
same  quantity  of  circulating  medium  which  it  before  pos- 
sessed. A  part  would  be  exported,  and  divided  among 
the  other  nations  till  the  usual  proportions  were  re-estab- 
lished." 

"  If  a  mine  of  gold  were  discovered  in  either  of  these 
countries,  the  currency  of  that  country  would  be  lowered 
in  value  in  consequence  of  the  increased  quantity  of  the 
precious  metals  brought  into  circulation,  and  would  there- 
fore no  longer  be  of  the  same  value  as  that  of  other 
countries.  Gold  and  silver,  whether  in  coin  or  in  bullion, 
obeying  the  law  which  regulates  all  other  commodities, 
would  immediately  become  articles  of  exportation  ;  they 
would  leave  the  country  where  they  were  cheap,  for  those 
countries  where  they  were  dear,  and  would  continue  to 
do  so  as  long  as  the  mine  should  prove  productive,  and 
till  the  proportion  existing  between  capital  and  money 
in  each  country  before  the  discovery  of  the  mine  were 
again  established,  and  gold  and  silver  restored  every- 
where, to  one  value." 


THE  DISTRIBUTION  OF  MONEY.  51 

"  Thus,  then,  it  appears  that  the  currency  of  one  coun- 
try can  never,  for  any  length  of  time,  be  much  more  val- 
uable, as  far  as  equal  quantities  of  the  precious  metals 
are  concerned,  than  that  of  another ;  that  excess  of  cur- 
rency is  but  a  relative  term." 

From  no  logical  consequence  of  his  doctrine  did  Mr. 
Ricardo  shrink. 

"The  exportation  of  the  specie,"  he  says,  in  the  same 
pamphlet,  "  may  at  all  times  be  safely  left  to  the  discre- 
tion of  individuals.  It  will  not  be  exported  more  than 
any  other  commodity,  unless  its  exportation  should  be 
advantageous  to  the  country.  If  it  be  advantageous  to 
export  it,  no  laws  can  effectually  prevent  its  exportation." 

"The  exportation  of  coin,"  he  says  again,  "is  caused 
by  its  cheapness."  "  We  should  not  import  more  goods 
than  we  export,  unless  we  had  a  redundancy  of  currency." 
Again :  "  Specie  will  be  sent  abroad  to  discharge  a  debt 
only  when  it  is  superabundant ;  only  when  it  is  the  cheap- 
est exportable  commodity."  "  Money  can  never  be  ex- 
ported to  excess  ;  " — never  to  such  an  extent "  as  to  occasion 
a  void  in  the  circulation." 

Not  only  did  Mr.  Hicardo  insist  that  the  exportation 
of  specie  might  safely  be  left  to  the  natural  course  of 
trade,  in  the  assurance  that  it  could  never  be  carried  to 
excess,  never  to  such  an  extent  as  to  produce  a  void  in 
the  circulation;  and  that  all  outflow  of  specie  certainly 
indicated  an  excess  of  money,  the  reduction  of  which 
was  wholesome  to  trade,  and  through  trade,  to  produc- 
tion ;  but  he  daunted  many  of  his  followers  by  advanc- 
ing boldly  to  the  extreme  case  of  a  large  subsidy  to  be 
paid  suddenly  abroad,  in  time  of  war,  when  foreign  ports 
were  closed  and  commerce  in  a  large  degree  suspended, 
and  declared,  without  hesitation  or  qualification,  that 
such  a  subsidy  to  a  foreign  country  would  not  be  paid 


52  MONEY. 

in  specie  unless  the  circulating  medium  at  home  were  re- 
dundant. 

This  doctrine  was  attacked  by  Mr.  Malthus  in  the  "  Ed- 
inburgh Eeview"  (Feb.,  1811),  with  arguments  of  which 
the  following  extracts  contain  the  gist.  Mr.  Malthus 
supposes  the  necessity  arising  for  importing  corn  largely, 
or  for  paying  a  subsidy  abroad,  and  proceeds  as  follows : 

"A  part  of  the  debt  will  be  paid  in  these  metals  [gold 
and  silver],  and  a  part  by  the  increased  exports  of  com- 
modities. But,  as  far  as  it  is  paid  by  the  transmission 
of  bullion,  this  transmission  does  not  merely  originate 
in  redundancy  of  currency.  It  is  not  occasioned  by  its 
cheapness.  It  is  not,  as  Mr.  Bicardo  endeavors  to  per- 
suade us,  the  cause  of  an  unfavorable  balance,  instead 
of  the  effect.  It  is  not  merely  a  salutary  remedy  for  a 
redundant  currency ;  but  it  is  owing  precisely  to  the 
cause  mentioned  by  Mr.  Thornton, — the  unwillingness 
of  the  creditor  nation  to  receive  a  great  additional  quan- 
tity of  goods  not  wanted  for  immediate  consumption, 
without  being  bribed  to  it  by  excessive  cheapness ;  and 
its  willingness  to  receive  bullion — the  currency  of  the 
commercial  world — without  any  such  bribe. 

"  It  is  unquestionably  true  as  stated  by  Mr.  Eicardo, 
that  no  nation  will  pay  a  debt  in  the  precious  metals  if 
it  can  do  it  cheaper  by  commodities ;  but  the  prices  of 
commodities  are  liable  to  great  depressions  from  a  glut 
in  the  market ;  whereas,  the  precious  metals,  on  account 
of  their  having  been  constituted  by  the  universal  consent 
of  society  the  general  medium  of  exchange  and  instrument 
of  commerce,  will  pay  a  debt  of  the  largest  amount  at 
its  nominal  estimation,  according  to  the  quantity  of  bull- 
ion contained  in  the  respective  currencies  of  the  coun- 
tries in  question." 

I  have  said  that  in  carrying  his  doctrine  out  without 


THE  DISTRIBUTION  OF  MONET.  53 

qualification  to  the  case  of  a  foreign  subsidy  in  case  of 
war,  Mr.  Ricardo  daunted  some  .who  held  with  him  up 
to  that  point.  Mr.  Henry  Thornton,  subsequently  one 
of  the  authors  of  the  Bullion  Report1,  in  his  important 
work  on  "Paper  Credit,"  published  in  1802,  had  admitted 
that  in  case  of  a  disastrous  failure  of  successive  harvests, 
an  exportation  of  money  might  take  place,  without  refer- 
ence to  the  state  of  the  domestic  circulation,  and  to  the 
detriment  of  trade.  The  following  are  his  words  : 

"Though  the  value  of  the  commercial  exports  and 
imports  of  a  country  will  have  this  general  tendency  to 
proportion  themselves  to  each  other,  there  will  not  fail 
occasionally  to  arise  a  very  great  inequality  between 
them.  A  good  or  a  bad  harvest  in  particular,  will  have 
a  considerable  influence  in  producing  this  temporary 
difference.  The  extra  quantity  of  corn  and  other  articles 
imported  into  Great  Britain  in  this  and  the  last  year, 
with  a  view  to  supply  the  deficiency  of  our  own  crops, 
must  have  amounted  in  value  to  so  many  millions,  that 
it  may  justly  excite  surprise  that  we  should  have  been 
able,  during  an  expensive  war,  to  provide  the  means  of 
canceling  our  foreign  debt  so  far  even  as  we  have  done ; 
especially  when  the  peculiar  interruptions  to  our  com- 
merce are  also  considered." 

Mr.  Thornton  dwells  for  several  pages  on  the  causes 
thus  tending  to  produce  an  unfavorable  balance,  and 
resumes :  "  The  fair  statement  of  the  case  seems  to  be 
this :  At  the  time  of  a  very  unfavorable  balance  (pro- 
duced, for  example,  through  a  failure  of  the  harvest),  a 
country  has  occasion  for  large  supplies  of  corn  from 
abroad ;  but  either  it  has  not  the  means  of  supplying  at 
the  instant  a  sufficient  quantity  of  goods  as  a  return,  or, 

1  See  pp.  353-4. 


54  MONEY. 

which  is  much  the  more  probable  case,  and  which,  I 
suppose,  is  more  applicable  to  England,  the  goods  which 
the  country  having  the  unfavorable  balance  is  able  to 
furnish  as  means  of  canceling  its  debt  are  not  in  such 
demand  abroad  as  to  afford  the  prospect  of  a  tempting 
or  even  of  a  tolerable  price  ;  and  this  want  of  a  demand 
may  happen  possibly  through  some  political  circum- 
stance which  has  produced,  in  a  particular  quarter,  the 
temporary  interruption  of  an  established  branch  of  com- 
merce. The  country,  therefore,  which  has  the  favorable 
balance  being,  to  a  certain  degree,  eager  for  payment, 
but  not  in  immediate  want  of  all  that  supply  of  goods 
which  would  be  necessary  to  pay  the  balance,  prefers 
gold  as  part,  at  least,  of  the  payment,  for  gold  can 
always  be  turned  to  a  more  beneficial  use  than  a  very 
great  overplus  of  any  other  commodity." 

Mr.  Thomas  Tooke,  again,  in  his  pamphlet  on  the 
'*  State  of  the  Currency,"  published  after  the  Panic  of 
1825,  discusses  the  practicability  of  meeting  large  and 
unexpected  balances  of  payments  by  the  shipment  of 
goods,  in  which  he  adduces  considerations  to  show  that  an 
increased  export  of  ordinary  commodities  cannot 'always 
be  made  with  the  promptness  which  a  sudden  exigency 
may  demand,  the  disturbing  causes  being,  in  his  view, 
of  considerable  extent  and  duration.1 

It  is  to  be  noted  that  since  the  date  of  these  several 
publications,  the  importance  of  the  exceptional  causes 
contemplated  by  Messrs.  Thornton,  Eicardo,  and  Tooke 

1  Thus  Mr.  Tooke  states  that  "  taking  the  time  occupied  in  the 
shipment,  the  transmission,  the  interval  between  arrival  and  sale, 
and  again  between  the  sale  and  the  expiration  of  the  credit,  a  period 
of  a  year  and  a  half,  or  two  years,  may  elapse  before  the  funds 
arising  from  such  shipments  can  be  made  available  to  foreign  pay- 
ments."—[P.  106.] 


THE  DISTRIBUTION  OF  MONEY.  55 

has  been  greatly  diminished.  The  railway  car  and  the 
ocean  steamship  to  convey  freight,  with  the  telegraph 
by  land  and  sea,  to  convey  information  of  commercial 
demand  and  to  carry  back  orders  for  goods,  have  much 
reduced  the  scope  of  the  retarding  forces,  while  the 
almost  universal  reduction  in  the  term  of  commercial 
credit  has  rendered  the  proceeds  of  exportation  avail- 
able at  a  much  earlier  date. 

A  second  cause  which  has  operated  within  the  same 
interval  to  take  away  much  of  the  importance  which  the 
participants  in  this  high  debate,  in  the  early  part  of  the 
century,  attached  to  any  sudden  and  extensive  disturb- 
ance of  trade  or  demand  for  foreign  expenditure,  is  the 
remarkable  extension,  coincidently  with  the  reduction  in 
the  term  of  commercial  credit,  of  the  national  borrowing- 
system,  under  which  any  organized  government,  however 
poor  its  credit,  can  borrow,  at  a  price ;  while  govern- 
ments of  resource  and  reputation  are  enabled  to  con- 
tract loans  to  an  almost  unlimited  extent  upon  favorable 
terms. 


Such  is  the  law  of  distribution  of  the  precious  metals 
as  expounded  and  enforced  by  Mr.  Kicardo.  In  his  view, 
gold  and  silver  keep  their  due  proportions,  the  world  over, 
as  the  waters  of  a  lake  preserve  their  level.  If  any  force 
operates  to  disturb  that  level,  every  particle  in  the  whole 
mass  moves  instantly  to  restore  the  equilibrium.  So  long 
as  the  movement  of  the  precious  metals  is  not  restrained 
by  force  of  law  (and  Mr.  Eicardo  holds  the  force  of  law 
in  this  respect  to  be  very  slight1),  no  country  can  retain 

1  "  It  is  by  all  writers  indiscriminately  allowed  that  no  penalties  can 
prevent  the  coin  from  being  melted  when  its  value  as  bullion  becomes 
superior  to  its  value  as  coin." — [High  Price  of  Bullion.] 

Mr.  Mill,  however,  is  drawn  to  remark:     "The  effect  of  the  prohi- 


56  MONEY. 

an  excess,  or  suffer  a  deficiency,  above  or  below  its  own 
just  share. 

That  a  country  has  no  mineral  wealth  of  its  own  puts 
it  at  no  disadvantage  for  the  securing  of  its  proper 
part  of  the  world's  supply  of  money.  "For  gold,"  said 
John  Locke,  in  his  glorious  paper  on  "  The  Value  of  Mon- 
ey," addressed  to  the  Lord-Keeper  Somers,  "For  gold 
grows  not  that  I  know  in  our  country,  and  silver  so  little 
that  one-hundred-thousandth  part  of  the  silver  we  have 
now  in  England  was  not  drawn  out  of  any  mines  in  this 
island."  "  The  power  of  manufacturing  at  a  cheap  rate," 
wrote  Henry  Thornton,  "  is  far  more  valuable  than  any 
stock  of  bullion."  And  Prof.  Senior,  in  his  lectures 
(1830)  on  "The  Cost  of  Obtaining  Money,"  writes:* 
"The  mine  worked  by  England  is  the  general  market 
of  the  world.  The  miners  are  those  who  produce  those 
commodities  by  the  export  of  which  the  precious  metals 
are  obtained." 

It  will  be  observed  that  Mr.  Eicardo  makes  Price  the 
agent  in  effecting  this  movement  of  gold  and  silver.  It 
is  because  the  purchasing  power  of  money  falls  when  it 
is  supplied  in  excess,  that  the  excess  tends  to  run  away. 

bition  cannot,  however,  have  been  so  entirely  insignificant  as  it  has 
been  supposed  to  be  by  writers  on  the  subject.  The  facts  adduced 
by  Mr.  Fullarton  show  that  it  required  a  greater  percentage  of  dif- 
ference in  value  between  coin  and  bullion  than  has  commonly  been 
imagined,  to  bring  the  coin  to  the  melting-pot." — [Political  Economy, 
III,  ix,  1.] 

"The  conscience  of  the  exporter,  and  the  value  of  a  false  oath," 
says  Mr.  Bosanquet,  "  are  correctly  stated  by  the  committee  at  four 
and  one  half  per  cent."— [Practical  Observations,  etc.,  p.  30.]  The 
market  price  of  consciences  would  seem  to  have  fallen  in  the  course 
of  a  century,  for  "A.  V.,"  in  his  letter  to  Lord  Godolphin,  in  1696, 
speaks  of  twenty  per  cent,  as  "  a  good  alloy  for  any  scruple  of  con- 
science "  in  the  melting  of  the  coin. 


RELATION  OF  MONET  TO  PRICES.  57 

It  is  because  the  purchasing  power  of  money  rises  where 
its  quantity  is  deficient,  that  gold  and  silver  set  in  Kke  a 
tide l  towards  whatever  country  lacks  its  due  distributive 
share  of  the  volume  in  existence.  And  in  the  case  of  a  new 
supply,  as  from  an  opened  mine,  the  added  amount, 
wherever  produced,  is  swiftly  and  surely  apportioned 
among  all  the  nations  having  commercial  relations,  just 
as  a  bucket  of  water  poured  upon  the  centre  of  a  lake 
will  not  long  disturb  the  general  level. 

Whether  Mr.  Eicardo  does  not  attribute  an  undue  de- 
gree of  mobility  to  the  precious  metals,  under  the  agency 
of  price ;  whether  the  retarding  influences  have  not  more 
power  than  this  great  thinker  attributes  to  them  ;  wheth- 
er, during  the  delays  attending  the  redistribution  of  the 
precious  metals  following  any  important  disturbing 
cause,  effects  may  not  be  produced  which  we  cannot  af- 
ford to  overlook  in  our  philosophy  of  money,  are  ques- 
tions we  shall  yet  have  to  discuss.2  The  general  truth  of 
the  doctrine  is  not  to  be  disputed,  nor  can  its  importance 
be  disparaged.  It  sets  justly  forth  the  tendency  of  great 
forces  which  never  cease  to  operate,  whatever  obstruc- 
tion they  may  encounter,  throughout  the  world  of  com- 
merce. 

"The  amount  of  money  in  a  country"  is,  therefore,  in 
Mr.  Eicardo's  words,  "regulated  by  its  value." — [Eeply 
to  Bosanquet.]  And,  conversely,  the  value  of  money  in 
any  country  is  determined  by  the  amount  existing. 


We  are  now  in  a  position  to  undertake  the  inquiry 
how  much  money  a  country  requires?   It  is  that  amount 

1  Mr.  Tooke's  favorite  illustration,  frequently  repeated  in  his  works. 
2  See  p.  150. 


58  MONEY. 

which  will  keep  its  prices  (after  allowance  is  made  for 
the  cost  of  transporting  goods l)  at  a  level  with  those  of 
the  countries  with  which  it  has  commercial  relations.2 
Thus,  if  it  costs  $2  (including  charges  for  freight,  insur- 
ance, interest,  commissions,  etc.,)  to  carry  a  barrel  of 
flour  from  New  York  to  London,  and  flour  of  a  given 
quality  sells  in  London  at  $12,  there  should  be  money 
enough  in  New  York  to  allow  and  to  enable  $10  to  buy  a 
barrel  of  flour  of  that  quality. 

But  what  determines  whether  $10,  or  more  or  less, 
shall  buy  a  barrel  of  flour  in  New  York  ?  Why  will  not 
$8  buy  it  ?  ,Why  will  less  than  $12  do  it  ? 

This  brings  us  to  the  question,  what  is  the  relation 
between  the  amount  of  money  in  a  country  and  the  gen- 
eral scale  of  prices  existing  therein  ?  a  question  which, 
if  not  the  most  difficult  in  Political  Economy,  is  perhaps 
the  one  upon  which  the  most  contradictory  opinions 
have  been  expressed  by  economists  of  reputation. 

The  following  is  Mr.  John  Stuart  Mill's  statement  of 

1 II  peut  arriver  que  le  prixde  1'argent  differe  d'une  maniere  durable 
de  pays  a  pays,  lorsque  des  obstacles  permanents  s'opposent  au 
mouvement  de  va-et-vient,  qui  retablirait  le  niveau.  Ainsi  les  me- 
taux  precieux  se  maintiendront  a  un  prix  eleve  dans  les  contrees  qui 
ne  peuvent  se  les  procurer  qu'en  livrant  en  echange  des  biens  d'un 
transport  tres-difficile." — [Roscher  (Wolowski's  Tranl.),  §  125.] 

2  "Every  country  (temporary  fluctuations  excepted)  will  possess, 
and  have  in  circulation,  just  that  quantity  of  money  which  will  perform 
all  the  exchanges  required  of  it,  consistently  with  maintaining  a  value 
conformable  to  its  cost  of  production.  The  prices  of  things  will,  in 
the  average,  be  such  that  money  will  exchange  for  its  own  cost  in  all 
other  goods ;  and  precisely  because  the  quantity  cannot  be  prevented 
from  affecting  the  value,  the  quantity  itself  will  be  kept  at  the 
amount  consistent  with  that  standard  of  prices — at  the  amount  nec- 
essary for  performing,  at  those  prices,  all  the  business  required  of  it.'* 
— [J.  S.  Mill,  Political  Economy,  III,  ix,  3.] 


RELATION  OF  MONEY  TO  PRICES.  59 

the  relation  between  money  and  commodities  : l  ' *  The 
supply  of  money  is  the  quantity  of  it  which  people  are 
wanting  to  lay  out :  that  is,  all  the  money  they  have  in 
their  possession,  except  what  they  are  hoarding,  or  at 
least  keeping  by  them  as  a  reserve  for  future  contingen- 
cies. The  supply  of  money,  in  short,  is  all  the  money 
in  circulation  at  the  time. 

"The  demand  for  money,  again,  consists  of  all  the 
goods  offered  for  sale.  Every  seller  of  goods  is  a  buyer 
of  money,  and  the  goods  he  brings  with  him  constitute 
his  demand.  The  demand  for  money  differs  from  the 
demand  for  other  things  in  this,  that  it  is  limited  only 
by  the  means  of  the  purchaser.  The  demand  for  other 
things  is  for  so  much  and  no  more ;  but  there  is  always 
a  demand  for  as  much  money  as  can  be  got.  ...  As 
the  whole  of  the  goods  in  the  market  compose  the  de- 
mand for  money,  so  the  whole  of  the  money  constitutes 
the  demand  for  goods."  .  .  . 

[Mr.  Mill  then  supposes  an  increase  of  money  to  take 
place  and  prices  thereupon  to  rise.] 

"It  is  to  be  remarked  that  this  ratio  would  be  pre- 
cisely that  in  which  the  quantity  of  money  had  been  in- 
creased. If  the  whole  money  in  circulation  was  doubled, 
prices  would  be  doubled.  If  it  was  only  increased  one- 
fourth,  prices  would  rise  one-fourth.2  .  .  . 

1  The  following  is  the  statement  made  by  Montesquieu:  "Si  Ton 
compare  la  masse  de  1'or  et  de  1'argent  qui  est  dans  le  monde  avec  la 
somme  des  marchandises  qui  y  sont,  il  e-st  certain  que  chaque  denree 
ou  marchandise  en  particulier  pourra  etre  comparee  a  une  certaine 
portion  de  la  masse  entiere  de  1'or  et  de  1'argent.  Comme  le  total  de 
1'une  est  au  total  de  1'autre,  la  partie  de  1'une  sera  a  la  partie  de 
1'autre." — [De  1'Esprit  des  Lois,  xxii,  7.] 

3  "  That  commodities  would  rise  or  fall  in  price,  in  proportion  to 
the  increase  or  diminution  of  money,  I  assume  as  a  fact  which  is 
incontrovertible." — [Ricardo,  Reply  to  Bosanquet] 


60  MONEY. 

"  The  very  same  effect  would  be  produced  on  prices,  if 
we  suppose  the  goods  diminished  instead  of  the  money 
increased;  and  the  contrary  effect,  if  the  goods  were 
increased  or  the  money  diminished.  .  .  . 

"  So  that  the  value  of  money,  other  things  being  the 
same,  varies  inversely  as  its  quantity ;  every  increase  of 
quantity  lowering  the  value,  and  every  diminution  rais- 
ing it  in  a  ratio  exactly  equivalent. 

"From  what  precedes,  it  might  for  a  moment  be  sup- 
posed that  all  the  goods  on  sale  in  a  country  at  any  one 
time  are  exchanged  for  all  the  money  existing  and  in  cir- 
culation at  that  same  time ;  or,  in  other  words,  that 
there  is  always  in  circulation  in  a  country  a  quantity  of 
money  equal  in  value  to  the  whole  of  the  goods  then 
and  there  on  sale.  But  this  would  be  a  complete  mis- 
apprehension. .  .  . 

"If  we  assume  the  quantity  of  goods  on  sale,  and  the 
number  of  times  these  goods  are  resold,  to  be  fixed  quan- 
tities, the  value  of  money  will  depend  upon  its  quantity, 
together  with  the  average  number  of  times  that  each 
piece  changes  hands  in  the  process. 

"  The  propositions  we  have  laid  down  .  .  .  must 
for  the  present  be  understood  as  applying  only  to  a 
state  of  things  in  which  money,  that  is,  gold  or  silver,  is 
the  exclusive  instrument  of  exchange  and  actually  passes 


"  If  the  quantity  of  gold  in  a  country  whose  currency  consists  of 
gold  should  be  increased  in  any  given  proportion,  the  quantity  of 
other  articles  and  the  demand  for  them  remaining  the  same,  the 
value  of  any  given  commodity  measured  in  the  coin  of  that  country 
would  be  increased  in  the  same  proportion. ": — [Huskisson,  The  De- 
preciation of  the  Currency.] 


RELATION  OF  MONEY  TO  PRICES.  61 

from  hand  to  hand  at  every  purchase,  credit  in  any  of  its 
shapes  being  unknown.1  .... 

"In  no  commodity  is  it  the  quantity  in  existence,  but 
the  quantity  offered  for  sale,  that  determines  the  value. 
Whatever  may  be  the  quantity  of  money  in  the  country, 
only  that  part  of  it  will  affect  prices  which  goes  into  the 
markets  for  commodities,  and  is  there  actively  exchanged 
against  goods.  .  .  .  Money  hoarded  does  not  act  on 
prices.  Money  kept  in  reserve  by  individuals  to  meet 
contingencies  which  do  not  occur,  does  not  act  on  prices. 
The  money  in  the  coffers  of  the  bank,  or  retained  as  a 
reserve  by  private  bankers,  does  not  act  on  prices  until 
drawn  out,  nor  even  then,  unless  drawn  out  to  be  expend- 
ed in  commodities. 

"It  frequently  happens  that  money,  to  a  considerable 
amount,  is  brought  into  the  country,  is  there  actively  em- 
ployed as  capital,  and  again  flows  out,  without  having 
ever  once  acted  upon  the  markets  of  commodities?  but 
only  upon  the  market  of  securities,  or,  as  it  is  commonly 
though  improperly  called,  the  money  market." 

1  By  overlooking  this  proviso,  Prof.  Price,  in  his  "  Principles  of  Cur- 
rency," was  led  to  do  grave  injustice  towards  Mr.  Mill,  characterizing 
his  proposition  that  all  the  goods  on  sale  constitute  the  demand  for 
money  as  "  absolutely  and  glaringly  untrue  "  [p.  162],  and  goes  for- 
ward to  show  how  cotton  is  sold  for  iron  and  iron  for  cotton  without 
the  intervention  of  money.     No  one,  however,  has  more  justly  de- 
scribed (in  the  appropriate  place)  the  office  of  barter  and  of  credit  in 
saving  the  use  of  money,  than  Mr.  Mill ;  and  in  the  above  series  of 
propositions  he  carefully  guards  himself  against  misconstruction  by 
the  proviso  which  Prof.  Price  so  strangely  overlooked. 

2  Mr.  Ricardo  appears  to  doubt  whether  this  can  occur,  at  least 
in  an  important  degree.     "  There  can,"  he  says  in  his  reply  to  Bosan- 
quet,  "be  no  great  addition  to  the  bullion  of  a  country,  the  currency 
of  which  is  of  standard  value,  without  causing  an  increase  in  the 
quantity  of  money."     We  shall  meet  the  question  further  on. 

6 


62  MONEY. 

"This  is  a  case,"  continues  Mr.  Mill,  "highly  deserv- 
ing of  attention,  and  it  is  a  fact  now  beginning  to  be  rec- 
ognized that  the  passage  of  the  precious  metals  from  coun- 
try to  country  is  determined  much  more  than  was  for- 
merly supposed1  by  the  state  of  the  loan  market  in 
different  countries  and  much  less  by  the  state  of  prices." 

In  the  above  paragraphs  Mr.  Mill  shows  very  clearly 
the  fallacy  of  the  popular  notions  which  have  crept  into 
many  a  treatise  not  without  merit,  that  the  volume  of 
money  is  in  some  way  to  be  compared  with  the  volume 
of  accumulated  wealth,  or  with  the  volume  of  annual 
production,  or  with  the  numbers  of  the  population.  The 
use  of  money,  we  have  seen,  arises  out  of  trade.  Hence 
it  is  the  amount  of  trade,  and  not  of  production,  that 
must  determine  price,  the  volume  of  money  being  fixed. 
But  production  and  trade  have  no  necessary  or  constant 
relation  to  each  other.  A  community  may  have  large 
production  and  little  trade ;  or  it  may  have  great  trade 
with  relatively  small  production.  If,  as  is  conceivable, 
the  entire  product  were  to  be  consumed  by  the  identical 
producers,  no  exchange  at  all  would  take  place  and  no 
use  of  money  whatever  would  be  required. 

But  Mr.  Mill's  propositions  require  to  be  still  further 
qualified.  Let  us  suppose  we  are  making  arrangements 
for  the  transportation  from  Chicago  to  Baltimore  of  a 
large  part  of  the  wheat  of  the  Northwest.  It  is  evident 
that  the  number  of  cars  of  a  given  capacity  will  bear 
some  necessary  ratio  to  the  bulk  of  grain  to  be  carried ; 
but  it  is  also  evident  that  we  cannot  ascertain  how  many 
cars  will  be  needed  to  carry  so  much  wheat  till  we 
know  how  often  the  cars  can,  on  the  average,  make  the 
trip. 

1  See  Ricardo's  statement  of  the  law  of  the  distribution  of  the 
precious  metals. 


RELATION  OF  MONEY  TO  PRICES.  63 

So  we  must  say  of  the  supply  of  money :  it  is  a  quan- 
tity of  two  dimensions.  We  need  to  know  not  only  its 
volume,  the  number  of  coins  of  a  given  weight  and  fine- 
ness of  metal,  but  also  its  rate  of  movement,  or,  as  is 
usually  said,  its  rapidity  of  circulation.1 


"What  have  we  thus  far  obtained?  We  have  seen  that 
the  quantity  of  money  required  in  any  community  bears 
no  constant  ratio  to  population,  and  that  it  is  not  deter- 
mined by  the  amount  of  accumulated  wealth,  nor  by  the 
extent  of  the  annual  production;2  but  that,  as  the  need 
of  money  arises  wholly  out  of  the  fact  of  trade,  we  must 
look  to  the  demands  of  trade  to  ascertain  the  quantity  of 
money  which  a  community  shall  employ,  the  question  as 
to  the  demand  for  money  being  merely  the  question  what 
goods  are  offered  for  money. 

We  have  further  seen  that  the  supply  of  money  is  a 
quantity  of  two  dimensions,  the  volume  of  the  precious 
metals  circulating — the  number  of  pieces  of  a  given 
weight  and  fineness — and  the  rate  of  their  movement. 
"Engineers,"  says  Mr.  McLeod,  "usually  call  the  quan- 
tity of  the  motion  of  an  engine  its  duty ;  so  we  may  call 
the  circulation  of  the  currency  its  duty." 3 

1  Mr.  Mill  severely  criticises  this  phrase,  and  makes  the  following 
suggestion :    "  Rapidity  of  circulation  being. a  phrase  so  ill  adapted  to 
express  the  only  thing  which  it  is  of  any  importance  to  express  by  it, 
and  having  a  tendency  to  confuse  the  subject  by  suggesting  a  mean- 
ing extremely  different  from  the  one  intended,  it  would  be  a  good 
thing  if  the  phrase  could  be  got  rid  of,  and  another  substituted   more 
directly  significant  of  the  idea  meant  to  be  conveyed.     Some  such 
expression  as  '  the  efficiency  of  money,'  though  not  unexceptionable, 
would  do  better." 

2  For  similar  reasons,  not  by  the  amount  of  taxation :  a  favorite 
view  of  some  writers. 

3  Economical  Philosophy,  i,  211. 


64  MONEY. 

And  this  requires  us  to  observe  that,  in  the  view  of 
those  who  hold  that  money  acts  as  a  Measure  of  Value,1 
it  performs  this  function  in  respect  to  a  vast  bulk  of 
commodities  where  it  is  not  called  on  to  become  a  me- 
dium of  exchange.  It  is  its  use  as  a  medium  of  exchange 
which  determines  its  value ;  yet  its  value,  so  determined, 
becomes  the  means --of  estimating  values,  without  refer- 
ence to  actual  exchanges.2  It  costs  nothing  to  measure 
values,  in  this  sense.  It  costs  something  to  exchange 
them.  It  requires  the  actual  use  of  money,  for  a  longer 
or  shorter  space  of  time,  to  effect  those  double  exchanges 
which  we  call  buying  and  selling ;  but  the  prices  result- 
ing from  such  exchanges  may  be  applied  to  far  greater 
bodies  of  wealth,  without  the  use  of  money.  For  exam- 
ple, a  farmer  sells  a  cow  to  be  sent  to  the  city  for  beef. 
It  is  only  in  the  actual  sale  that  money  is  used :  but  he 
takes  the  price — the  money-value — thus  determined,  as 
the  means  of  estimating  the  value  of  his  herd ;  and  so 
does  the  government  in  taxing  him  ;  so  also  do  his  neigh- 
bors in  deciding  how  much  of  a  man  he  is.  Our  farmer 
sells  another  cow,  this  time  to  a  mechanical  neighbor, 
and  takes  his  pay  in  work.  No  money  passes,  and  hence 
money  serves  here  as  a  measure  of  value  either  for  the 
cow  or  the  work,  only,  if  at  all,  in  the  way  indicated, 
namely,  the  farmer  compares  his  cow  with  the  one  he 
has  just  sold  for  money,  and,  knowing  it  to  be  as  good  a 
cow,  or  better,  or  poorer,  fixes  her  price,  in  denomina- 
tions of  money,  for  the  purposes  of  the  contemplated  ex- 

1  See  pp.  4-9. 

3  "  The  cotton  must  be  calculated  and  expressed  in  money,  and  so 
must  the  iron,  before  they  can  be  exchanged  for  one  another;  in  oth- 
er words,  they  must  be  measured,  and  that  is  clone  by  money :  but 
the  actual  money  is  not  wanted  at  all."— [Prof.  Price,  Principles  of 
Currency,  p.  163.] 


RELATION  OF  MONEY  TO  PRICES.  65 

change,  the  same,  or  higher,  or  lower,  to  correspond  with 
the  facts  of  the  case,  while  the  mechanic,  having  worked 
the  month  before  at  money  wages,  and  knowing  his  abil- 
ity to  render  an  equal  service  in  the  new  relation,  fixes 
the  price  of  his  labor,  in  denominations  of  money,  for  the 
purposes  of  the  contemplated  exchange,  at  the  same 
amount  per  day  or  per  week. 

It  will  be  observed  that  every  time  a  barter  transac- 
tion is  substituted  for  buying  and  selling,  the  demand 
for  money  is  thereby  diminished  and  its  value  thereby 
lowered  (the  supply  remaining  the  same),  while  the 
higher  prices  of  commodities  which  result  from  the  sales 
actually  effected  by  the  use  of  money,  are  carried  over, 
in  estimation,  to  the  commodities  remaining  unsold,  or 
to  those  whose  transfer  is  accomplished  by  a  direct  ex- 
change of  goods  for  goods. 

And  conversely,  just  so  far  as  sales  for  money  are 
substituted  for  barter  transactions,  the  demand  for 
money  being  thereby  increased,  the  value  of  money 
rises,  and  the  lower  prices  which  result  are  carried  over, 
in  estimation,  to  the  commodities  directly  exchanged,  or 
remaining  in  store. 

But  it  is  not  alone  the  continuance,  in  part,  of  the 
barter  system  which  reduces  the  demand  for  money. 
The  introduction  of  the  Credit  System  has  an  effect  in 
the  same  direction.  We  saw  that  one  great  reason  for 
the  use  of  money  was  found  in  the  want  of  coincidence 
in  exchange,  both  as  to  times  and  quantities.  The 
farmer  harvests  his  crop  within  the  space  of  a  few  weeks. 
But  that  which  he  purchases  he  requires  now  and  then, 
week  by  week,  throughout  the  year.  In  the  discussion 
of  the  need  for  money  which  was  quoted1  from  Prof. 

1  See  p.  2. 


66  MONET. 

Jevons's  work,  it  was  assumed  that  the  farmer  would 
not  part  with  his  produce  until  he  had  the  material 
equivalent  therefor  actually  in  hand ;  and  that  the  shop- 
keeper would  be  equally  lacking  in  confidence  towards 
the  farmer.  But  if  the  farmer  and  the  shop-keeper  can 
agree  to  trust  each  other,  this  failure  of  coincidence  in 
the  times  at  which  their  respective  needs  are  felt,  will 
involve  merely  a  little  book-keeping,  and  no  use  of 
money.  The  farmer  will  take  groceries,  clothing-,  etc., 
as  he  requires  them ;  and  at  the  end  of  the  season  will 
haul  down  fifty  bushels  of  wheat  to  the  grocer,  twenty 
to  the  tailor,  etc.,  and  the  accounts  are  squared. 

The  tailor  and  the  boot-maker  no  longer  are  plunged 
into  that  embarrassment  in  which  we  have  contemplated 
them,  arising  out  of  a  want  of  coincidence  between  the 
value  of  integral  portions  of  their  respective  products. 
The  tailor  is  no  longer  obliged  to  say  :  One  coat  is  worth 
two  pairs  of  boots ;  you  have  brought  me  a  pair  of 
boots  :  good ;  take  half  of  this  coat  and  wear  it  while  I 
wear  your  boots ;  when  I  have  worn  them  out  I  will 
take  another  pair,  and  then  I  will  let  you  have  the  other 
half  of  the  coat.  The  tailor  credits  the  boot-maker  with 
one  pair  of  boots,  bought,  charges  him  with  one  entire 
coat,  sold,  and  when  the  second  pair  of  boots  is  brought 
in,  gives  credit  for  that  also,  squaring  the  transaction. 

The  above  illustration  may  represent  all  that  large 
body  of  exchange-transactions  where  the  parties  become 
mutually  indebted ;  obligations  very  irregularly  incurred 
as  to  time  and  amount,  canceling  each  other,  leaving  a 
small  balance,  or  perhaps  none  at  all,  to  be  paid  in 
money.  It  does  not  for  our  present  purpose  matter 
whether  such  indebtedness  is  witnessed  only  in  the 
memory  of  the  parties,  or  takes  the  form  of  current 
book  accounts,  or  is  more  formally  evidenced  and  se- 


RELATION  OF  MONEY  TO  PRICES.  67 

cured  by  notes  of  hand.     Mr.  McLeod  states  a  case  as 
follows  : 

"  Let  us  suppose  that  A  and  B  are  reciprocally  in- 
debted to  each  other  for  the  sale  of  goods.  Let  us 
suppose  that  A  has  bought  goods  from  B  to  the  amount 
of  £10,  and  B  has  bought  goods  from  A  to  the  amount 
of  £13.  Then  it  is  quite  clear  there  are  three  ways  of 
settling  their  dealings :  First,  each  may  send  a  clerk  to 
the  other  to  demand  payment  in  full  of  his  debt.  This 
would  require  £23.  Second,  A  may  send  £10  to  B  to 
discharge  his  debt  and  B  may  send  it  back  to  A  with  £3 
more  to  discharge  his  debt.  This  method  would  require 
£13.  Third,  they  may  meet  and  set  off  their  mutual 
debts  against  each  other  and  pay  only  the  difference  in 
coin,  requiring  £3." — [Economical  Philosophy,  i,  208.] 

But  the  credit  system  has  a  still  wider  application  in 
economizing  the  use  of  money.  The  more  minute  the 
subdivision  of  labor,  the  more  complicated  become  the 
relations  of  exchange,  and  the  larger  the  proportion  of 
obligations  which  are  not  mutual.  T^he  cotton  manu- 
facturer, perhaps,  does  not  sell  to  a  single  person  from 
whom  he  buys.  Must  he,  therefore,  receive  a  material 
equivalent  every  time  he  sells,  and  yield  up  a  material 
equivalent  every  time  he  buys?  Here  again  we  find 
room  for  an  expedient  which  vastly  economizes  the  use 
of  money.  In  the  advance  of  civilization,  the  prom- 
issory note  is  made  transferable.1 

Of  the  efficiency  of  this  agency  for  dispensing  with 
the  use  of  money,  it  is  scarcely  necessary  to  speak.  I 
give  to  my  creditor  my  note  for  the  value  of  what  I  have 
received.  In  the  fullness  of  time  it  is  offered  to  me,  not 


1  Some  of  our  readers  may  not  know  that  this  is  a  very  modern 
expedient.     In  England  it  was  not  introduced  till  the  reign  of  Anne. 


68  MONEY. 

by  my  creditor  with  a  demand  for  payment,  but  by  my 
debtor,  who  says,  in  effect,  to  me,  here  is  your  note 
again;  now  give  me  back  that  I  gave  you.  He  has 
bought  my  note  from  my  original  creditor,  has  put  him- 
self in  the  place  of  the  creditor,  and  being  thus  at  the 
same  time  both  debtor  and  creditor  to  me,  as  I  am  both 
creditor  and  debtor  to  him,  the  transaction  is  complete. 
As  Mr.  Colwell  remarks,  "  no  currency  can  be  more 
suited  to  pay  a  man  with  than  that  which  he  has  issued 
himself." — [Ways  and  Means  of  Payment,  p.  8.] 

In  this  cancellation  of  indebtedness  the  banks  perform 
a  most  important  service,1  saving  a  vast  amount  of  time 
and  labor,  of  annoyance  and  disappointment. 

1  Prof.  Price's  definition  of  a  bank,  to  which  I  must  take  excep- 
tion as  imperfect  if  not  inaccurate,  would  imply  that  this  was  the 
sole  function  of  banking.  "  A  Bank,"  he  says,  "is  an  institution  for 
the  transfer  of  debts."  If  this  be  true,  it  is  not  the  truth.  Banks 
do  transfer  debts,  though  that  is  not  a  very  felicitous  statement  for 
the  cancellation  of  indebtedness  such  as  has  been  described.  But 
banks  also  create  debts  for  another  purpose  than  the  mere  settlement 
[set-off]  of  existing  obligations ;  that  purpose  is  the  loan  of  capital. 
•I  deposit  my  surplus  earnings  in  a  bank,  having  myself  no  means  of 
employing  them  reproductively.  The  bank  loans  them  to  a  manu- 
facturer or  a  merchant,  to  assist  him  in  carrying  on  his  business. 
This  is  not  the  transfer  of  a  debt  existing :  it  is  the  creation  of  a 
debt  (from  the  bank  to  me)  in  order  that  it  may  be  transferred ;  the 
vital  transaction  being  the  transfer,  as  a  loan  for  temporary  use,  of 
capital.  But,  says  Prof.  Price,  "  Capital  is  not  what  a  bank  deals 
in  or  lends.  It  cannot  lend  what  it  does  not  possess."  Certainly  it 
can ;  it  may  lend  capital  as  the  agent  of  those  who  do  own  and  possess 
it;  and  this  is  precisely  what  a  deposit  and  discount  bank  is  estab- 
lished for,  and  what  it  does.  Any  definition  or  form  of  statement 
which  covers  up  the  fact  that  the  great  business  of  the  modern  bank 
is  to  bring  borrowers  and  lenders  together  with  the  utmost  facility, 
and  to  effect  thereby  the  greatest  economy  in  the  use  of  the  floating 
capital  of  the  community,  I  must  regard  as  unfortunate. 


RELATION  OF  MONEY  TO  PRICES.  69 

In  this  view,  the  bank  is  a  third  party  who,  by  putting 
itself  now  in  the  debtor's  and  now  in  the  creditor's 
place,  that  is,  becoming  debtor  and  creditor  alternately, 
at  the  request  and  on  the  warrant  of  the  trading  indi- 
viduals concerned,  effects  that  mutuality  of  obligations 
which  is  the  condition  of  cancellation.  It  is  in  the  bank 
that  the  claim  of  the  creditor  and  the  obligation  of  the 
debtor  meet  and  are  simultaneously  discharged. 

The  Clearing-House,  with  its  gigantic  operations  is,  in 
respect  to  the  cancellation  of  indebtedness,  only  the 
Banker's  Bank,  doing  that  for  its  constituent  banks 
which  the  banks  do  for  the  individuals  of  the  trading 
community.  When  it  is  said  that  the  annual  Clearing- 
House  transactions  of  London  now  stand  at  or  above 
£6,000,000,000,  while  those  of  New  York  are  even 
greater,  the  importance  of  this  contribution  to  the  econ- 
omy of  money  will  be  apparent. 


While  thus,  through  the  operation  of  the  Credit  Sys- 
tem, the  occasion  for  the  use  of  money  is  largely  reduced 
in  modern  industrial  society,  and  thus  the  demand  for 
money  is  diminished,  the  efficiency  of  a  given  body  of 
money  is  continually  being  heightened  by  improvements 
in  the  art  of  banking,  and  thus  the  supply  of  money  is 
practically  increased.  For  the  present  we  leave  out  of 
account  the  substitution  of  paper  for  coin  as  a  circulat- 
ing medium,  and  keep  in  view  a  purely  metallic  cur- 
rency. Even  in  1809,  Mr.  Eicardo  noted  "the  daily 
improvements  which  we  are  making  in  the  art  of  econ- 
omizing the  use  of  the  circulating  medium,"  and  Mr. 
Norman,  in  his  "Kemarks  on  Currency  and  Banking" 
(1838),  states  that  notwithstanding  the  vast  increase  of 
production,  England  probably  possessed  less  coin  than 
6* 


70  MONEY. 

she  had  fifty  years  before,  while  France  had  less  than 
before  the  Revolution.  Since  that  time,  the  telegraph 
and  the  steam-car,  with  the  extension  of  the  banking 
system,  have  still  further  increased  the  rate  of  move- 
ment which  money  is  able  to  attain  in  the  purchase  of 
commodities  and  the  payment  of  debts. 

It  has  been  shown  that  the  Bank  and  the  Clearing- 
House,  through  their  agency  in  securing  the  Cancel- 
lation of  Indebtedness,  greatly  diminish  the  amount  of 
money  which  requires  to  be  used  in  effecting  the  exchanges 
of  a  people.  The  Bank,  through  the  Check  System, 
also  gives  a  higher  efficiency  to  any  given  amount  of 
money,  by  diminishing  the  necessary  Reserves  of  the 
trading  community.  It  will  appear  that  if  each  man  is 
to  carry  around  in  his  pocket,  or  keep  in  his  house  or 
shop,  all  the  money  which  he  apprehends  he  may  need 
to  use  before  it  will  be  possible  or  convenient  to  get  a 
new  supply,  the  aggregate  amount  of  such  reserves  will 
necessarily  be  very  large.  But,  through  the  Deposit  and 
Check  System,  the  aggregate  reserves  of  the  commercial 
community  may  be  greatly  reduced.  Instead  of  each 
man  keeping  money  by  him,  in  anticipation  of  a  call,  for 
weeks  it  may  be,  the  banker  is  able,  with  a  fifth  or  a 
tenth  part  the  ready  money  which  his  customers  would 
in  the  aggregate  have  required,  to  serve  each  in  his  turn. 
Only  one  man  could  have  a  given  piece  of  money  in  his 
pocket  at  a  time ;  but  a  dozen  men  may  be  checking  upon 
the  same  gold  in  the  banker's  vaults,  with  perfect  safety. 
The  adoption  of  this  system,  therefore,  diminishes  the 
amount  of  money  which,  in  a  given  state  of  trade,  will  be 
needed  to  make  purchases  and  effect  payments.  "If," 
says  Lord  Overstone,  "a  state  of  things  be  supposed  in 
which  no  deposit  business  existed,  and  there  is  a  certain 
state  of  prices  under  that  condition  of  things;  if  you 


ECONOMY  OF  MONEY.  71 

then  suppose  the  sudden  introduction  into  the  country  of 
the  deposit  system,  to  the  extent  to  which  it  now  exists 
in  fliis  country,  the  effect  of  that  great  change  will  be  a 
greater  economized  use  of  the  precious  metals,  and  con- 
sequently a  new  distribution  of  the  precious  metals 
throughout  the  world." — [Tracts,  p.  473.] 

But  this  economy  in  the  use  of  money  extends  even 
further  down  in  industrial  society.  "Not  only,"  wrote 
Mr.  Tooke,  "are  improvements  daily  taking  place  among 
the  bankers  in  their  payments  on  the  largest  scale ;  not 
only  is  the  practice  of  lodging  money  with  a  banker  be- 
coming more  general,  as  including  a  large  proportion  of 
the  smallest  classes  of  tradesmen ;  but  there  is  less  deten- 
tion in  the  very  minutest  channels  of  circulation,  inasmuch 
as,  by  the  institution  of  savings  banks,  the  most  inconsid- 
erable sums,  which  must,  but  for  this  mode  of  investment, 
have  been  dormant  as  petty  hoards  in  the  hands  of  me- 
chanics and  menial  servants,  have  become  and  are  becom- 
ing daily  more  available  to  swell  the  amount  of  currency 
applicable  to  general  purposes." — [History  of  Prices,  i, 
145.] 

The  causes  which  Mr.  Tooke  here  indicates  are  con- 
tinually operating  to  economize  the  use  of  money,  though, 
in  spite  of  all  these  improvements,  there  is  still  inevit- 
ably more  or  less,  everywhere,  of  waste  or  loss.  "  Some 
of  it,"  says  Locke,  "leaving  the  channels  of  trade,  will 
unavoidably  be  drained  into  standing  pools." 

But  while,  as  Chevalier  has  remarked,1  "it  is  well  to 
give  prominence  to  the  fact  of  the  nearly  stationary  char- 
acter of  the  metallic  currency  in  countries  wl^ere  the 
commercial  machinery  is  well  organized,"  it  is  easy  to 
overstate  the  case.  Thus  Prof.  Price,  in  his  book  on  the 

1  On  Gold,  Cobden's  translation,  p.  96. 


72  MONEY. 

"Principles  of  Currency,"  gives  an  analysis  of  the  sum  of 
£19,000,000  paid  into  Sir  John  Lubbock's  bank,  from 
which  it  appears  that  only  ,£605,000,  or  about  three  per 
cent.,  was  paid  in  coin  or  notes ;  and  Prof.  Price  there- 
after argues1  on  the  assumption  that  this  fairly  repre- 
sents the  proportion  of  payments  made  in  England  with 
ready  money.  There  is,  however,  reason  to  doubt 
whether  Sir  John  Lubbock's  bank  affords  accurate  in- 
dications of  the  character  of  the  whole  body  of  com- 
mercial transactions  throughout  England,  taking  city  and 
country  together;  while  it  is  notorious  that  no  other 
people  approach  the  English  in  the  economy  of  the  pre- 
cious metals,  the  check,  for  example,  being  thus  far 
almost  exclusively  an  English  and  American  institution. 
"Were  Prof.  Price  to  make  an  analysis  of  the  payments 
into  many  a  German  or  French,  or  even  Scotch,  bank, 
he  would  find  the  payments  in  coin  and  notes  to  be, 
not  three  parts  in  a  hundred  only,  but  thirty  or  even 
sixty.  So  that  this  able  writer  must  not  be  taken  too 
seriously  when  he  says  that  gold  and  silver  and  even 
bank-notes  are  "only  the  small  change  of  commerce"  [p. 
164] ;  and  again,  when  he  says  that  "  it  is  only  for  small 
payments,  for  the  small  retail  business  of  the  country, 
and  what  maybe  called  'change,'  that  gold  is  wanted 
and  used  in  England,"  there  is  danger  that  the  mind  of 
the  reader  shall  receive  an  erroneous  impression  of  the 
importance  of  this  function.  In  a  philosophical  sense 
retail  business  can  hardly  be  called  small.  "  The  value," 
says  Adam  Smith,  "of  the  goods  circulated  between  the 
different  dealers  never  can  exceed  the  value  of  those  cir- 
culated between  the  dealers  and  consumers,  whatever  is 

1  Cf.  pp.  68,  75,  78,  83,  86,  87,  88,  116,  117,  173. 


ECONOMY  OF  MONEY.  73 

bought  by  the  dealers  being  ultimately  destined  to  be 
sold  to  consumers." 1 


From  this  long  review  we  see  that  the  amount  of 
money  which  any  country  should  possess,  or  to  put  it 
otherwise,  will  possess  under  the  free  operation  of  the 
laws  of  distribution,  depends  not  alone  upon  the  amount 
of  its  trade,  the  number  and  frequency  of  payments  to  be 
made,  but  also  upon  the  habits  of  the  people,  commercial 
and  even  domestic;2  upon  the  degree  in  which  credit  ex- 
ists between  man  and  man,  and  between  city  and  city; 
upon  the  efficiency  of  the  laws  for  the  collection  of  debts ; 
upon  the  amount  of  traveling  which  takes  place  (for  the 
traveler,  notwithstanding  the  letter-of-credit,  uses  more 
money  for  a  given  expenditure  than  the  stay-at-home) ; 
upon  the  state  of  the  roads,  upon  the  celerity  and  cer- 
tainty of  the  postal  and  telegraph3  services,  and  the  de- 
gree in  which  express  companies  are  permitted  to  im- 
pose upon  the  public;  and  upon  the  commercial  and 
banking  organization  which  exists. 

Hence,  in  respect  to  no  community  can  we  say,  in  ad- 

1  Wealth  of  Nations,  i,  323. 

2 1  am  surprised  to  find  Prof.  Tucker  holding  of  the  former  slave- 
holding  States  that,  though  on  so  many  accounts  they  required  little 
money  in  proportion  to  their  capital  or  their  income,  they  yet  had  in 
the  institution  of  slavery  an  occasion  for  money  which  made  a  large 
addition  to  their  circulation. — [Money  and  Banks,  p.  28.]  I  should 
suppose  that,  notwithstanding  the  demands  of  the  domestic  slave- 
trade,  the  fact  that  the  masters  made  all  the  purchases  and  held  all 
the  money-reserves  for  their  artificial  families  of  100,  200  or  500  souls, 
would  have  made  the  occasion  for  money  less  rather  than  greater,  by 
reason  of  the  institution  of  slavery. 

8 On  the  influence  of  the  telegraph  in  a  panic,  see  the  "Economist," 
1875,  p.  609. 
7 


74  .  MONEY. 

vance,  what  amount  of  money  it  should  possess  in  order 
satisfactorily  to  perform  its  exchanges,  at  prices  corre- 
sponding to  those  which  rule  in  the  communities  with 
which  it  has  commercial  relations. 

Nor  is  it  necessary  that  it  should  be  known.  Such  in- 
quiries, for  example,  as  those  of  Locke,  who  reaches  the 
conclusion  that  not  less  than  "one-fiftieth  part  of  the  la- 
borers' wages,  one-fourth  part  of  the  land-holders'  yearly 
revenue,  and  one-twentieth  part  of  the  traders'  yearly 
returns,  in  ready  money,"  can  be  enough  to  drive  the 
trade,  of  a  country,  and  of  Sir  Wm.  Petty,  who  thought 
the  money  needed  in  his  time  was  one-half  the  rent  of 
land,  one-fourth  the  rent  of  buildings,  and  one-fifty-sec- 
ond part  of  the  annual  wages,1  such  inquiries  as  these 
are  of  merely  curious  interest. 

If  no  interference  with  the  natural  distribution  of  the 
precious  metals  is  allowed,  each  country,  each  county, 
and  each  town,  throughout  the  trading  world,  will  re- 
ceive its  due  distributive  share :  that  amount  of  money 
which  will  best  perform  its  exchanges,  an  amount  which 
could  not  be  exceeded  without  raising  prices  unduly  and 
disturbing  the  relations  of  trade. 

This  clearly  means  that,  in  general,  poor  countries  must 
have  little  money,  and,  of  course,  they  will  not  relish 
such  a  dispensation.  It  would  be  too  much  to  expect  of 
human  nature  that  the  inhabitants  of  such  countries 
should  not  complain  bitterly  of  the  lack  of  money,  and 
resort  to  many  devices  to  attract  and  retain  it  in  defiance 

"In  the  calculation  of  Mr.  Jevons  on  the  one  hand,  and  various 
statisticians  on  the  other,  who  have  estimated  the  annual  produce 
of  capital  and  labor  in  the  United  Kingdom,  the  proportion  between 
the  circulation  and  the  annual  income  of  the  country  is  1  to  6,  7,  or 
8."— [Prof.  Rogers's  Notes  to  Adam  Smith's  Wealth  of  Nations  i 
295.] 


ECONOMY  OF  MONET.  75 

of  the  law  of  distribution  which  has  been  pointed  out, 
not  seeing  that  the  real  eyil  from  which  they  suffer  is 
poverty  of  capital  and  paucity  of  production,  due  to 
soil,  to  climate,  to  vices  of  industrial  character,  or  to 
the  newness  of  settlement ;  and  that  the  true  cure  for  the 
evil  is  to  be  found  in  the  extension  and  diversification  of 
production  which  will  bring  trade,  and,  with  it,  money, 
correspondingly. 

Not  only  does  the  law  which  has  been  stated  govern 
the  distribution  of  the  precious  metals,  as  between  sep- 
arate countries,  but  it  applies  with  equal  force,  and  even, 
perhaps,  against  less  of  resistance,  to  the  several  sections 
of  the  same  country.  Each  will  receive,  each  will  retain, 
that  portion  of  the  money  of  the  whole  country  which 
the  necessities  of  its  trade  demand.  It  is  in  view  of  this 
tendency  of  gold  and  silver  to  seek  their  best  market, 
that  Sir  Walter  Scott,  in  his  "  Letters  of  Malachi  Mala- 
growther,  on  the  Currency  of  Scotland,"  compared  Great 
Britain  to  the  Image  in  Belshazzar's  Dream : 

"  London,  its  head,  might  be  of  fine  gold ;  the  fertile 
provinces  of  England,  like  its  breast  and  arms,  might  be 
of  silver ;  the  southern  half  of  Scotland  might  acquire 
some  brass  or  copper,  but  the  northern  provinces  would 
be  without  worth  or  value,  like  the  legs,  which  were 
formed  of  iron  and  clay. 

"  What  force  is  to  compel  gold  to  circulate  to  these 
barren  extremities  of  the  island  I  cannot  understand ; 
and,  when  once  forced  there,  I  fear  its  natural  tendency 
to  return  to  the  source  from  which  it  issued  will  render 
all  efforts  to  detain  it  as  difficult  as  the  task  of  the  men 
who  attempted  to  hedge  in  the  cuckoo." 


CHAPTEK  IV. 

THE  IMPOETANCE  OF  THE  MONEY  SUPPLY. 

SUCH  being  the  operation  of  the  law  of  the  distribu- 
tion of  the  precious  metals  through  the  agency  of  Price, 
and  such  the  relation  of  the  volume  of  money  to  prevail- 
ing prices,  we  have  now  to  meet  the  much  vexed  ques- 
tion, how  far  it  is  of  consequence  that  the  volume  of 
money  in  the  world  should  be  maintained  at  its  present 
dimensions,  or  increased  above  them. 

It  is  argued  that  the  law  of  distribution  as  stated  by 
Mr.  Ricardo,  applies  with  the  same  force,  whatever — 
within  reasonable  limits1 — the  volume  of  the  precious 
metals.  A  reduction  of  quantity  would  result  in  a  cor- 
responding enhancement  of  the  purchase-power  of  each 
integral  portion  of  the  remainder ;  while  an  increase  would 

1  In  his  "Cremation  Plan  of  Kesumption,"  Mr.  Wells  says:  "A 
three-cent  piece,  if  it  could  be  divided  into  a  sufficient  number  of 
pieces,  with  each  piece  capable  of  being  handled,  would  undoubtedly 
suffice  for  doing  all  the  business  of  the  country,  if  no  other  instru- 
mentality was  available." 

On  the  grounds  of  those  who  hold  the  theory  of  an  Ideal  Money, 
[see  pp.  290-91]  the  statement  may  be  accepted;  but  if  Mr.  Wells,  as 
I  understand,  holds  with  M.  Chevalier,  that  money  must  be  "  a  ma- 
terial equivalent "  for  the  things  with  which  it  is  to  be  exchanged, 
such  an  amount  of  silver  as  he  indicates  would  be  an  impossible  cur- 
rency for  a  country.'  Such  a  quantum  of  value,  like  the  drop  of 


IMPORTANCE  OF  MONEY  SUPPL  Y.  77 

as  surely  result,  other  things  remaining  the  same,  in  a 
diminution  of  the  purchase  power  of  each  ounce  of  silver, 
each  grain  of  gold. 

Bastiat,  in  his  airy  way,  thus  treats  the  question  : 
"  Ten  persons  were  at  play.  For  greater  ease  they  had 
adopted  the  plan  of  each  person  taking  ten  counters, 
and  placing  against  these  a  hundred  francs  under  a  can- 
dlestick so  that  each  counter  corresponded  to  ten  francs. 
After  the  game,  the  winnings  were  adjusted  and  the  play- 
ers drew  from  the  candlestick  as  many  ten  francs  as 
would  represent  the  number  of  counters.  Seeing  this, 
one  of  them — a  great  arithmetician,  perhaps,  but  an  in- 
different reasoner,  said,  '  Gentlemen,  experience  invaria- 
bly teaches  me  that,  at  the  end  of  the  game,  I  find  my- 
self a  gainer  in  proportion  to  the  number  of  my  counters. 
Have  you  not  observed  the  same  with  regard  to  your- 
selves ?  Thus,  what  is  true  of  me  must  be  true  of  each  of 
you,  or  what  is  true  of  each  must  be  true  of  all.  We  should, 
therefore, "all  of  us  gain  more  at  the  end  of  the  game  if 
we  all  had  more  counters.  Now,  nothing  can  be  easier ; 
we  have  only  to  distribute  twice  the  number.'  This  was 
done  ;  but  when  the  game  was  finished  and  they  came  to 
adjust  the  winnings,  it  was  found  that  the  thousand  francs 
under  the  candlestick  had  not  been  miraculously  multi- 
plied according  to  the  general  expectation.  They  had  to 
be  divided  accordingly,  and  the  only  result  obtained  (chi- 
merical enough)  was  this:  every  one  had,  it  is  true,  his 
double  number  of  counters,  but  every  counter,  instead  of 
corresponding  to  ten  francs,  only  represented  five. 

water  in  a  small  tube,  would  fall  within  the  law  of  capillary  attraction, 
where  the  tendency  to  adhere  to  the  wall  of  the  tube  becomes  strong- 
er, through  the  smallness  of  the  matter  on  which  it  operates,  than 
the  tendency,  through  the  force  of  gravitation,  to  seek  the  general 
level  below. 


78  MONEY. 

11  Thus  it  was  clearly  shown,  that  what  is  true  of  each  is 
not  always  true  of  all." — [Essays  in  Political  Economy.] 

What  matters  it,  then,  whether  the  amount  of  money 
be  increased  or  decreased  ? 

This  question  has  been  the  subject  of  controversy 
down  to  our  day.  The  result  with  which  we  shall  issue 
from  the  inquiry  will  *be  found  of  immediate  application 
to  the  Silver  Problem,  now  agitating  the  political  and 
economical  world. 

Let  Prof.  Cairnes  represent  the  views  of  those  econ- 
omists who  deprecate  the  increase,  or,  at  any  rate,  the 
considerable  increase,  of  the  precious  metals. 

"I  am  aware,  indeed,  that  there  are  writers1  who  re- 
gard gold  not  simply  as  a  convenient  medium  for  the  ex- 
change of  commodities  independently  produced,  but  as, 
in  itself,  a  source  of  productive  energy,  as  the  '  motive 
power  of  all  industry  and  commerce,'  and  who  accord- 
ingly consider  '  an  addition  to  the  quantity  of  money  to  be 
the  same  thing  as  an  addition  to  the  fixed  capital  of  a 
country,'  as  equivalent  in  its  effects  upon  industry  to 

1  Prof.  Cairnes  has  especially  in  view  Mr.  William  Newmarch,  the 
distinguished  coadjutor  of  Thomas  Tooke  in  his  "  History  of  Prices," 
and  himself  the  actual  author  of  the  later  volumes  of  that  invaluable 
series. 

That  ingenious  author,  Sir  Wm.  Petty,  in  his  tract  entitled  "  Verb- 
um  Sap,"  thus  writes :  "  For  money  is  but  the  fat  of  the  body  politic, 
whereof  too  much  doth  as  often  hinder  its  activity,  as  too  little  makes 
it  sick.  'Tis  true  that,  as  fat  lubricates  the  motion  of  the  muscles, 
feeds  in  want  of  victuals,  fills  up  uneven  cavities  and  beautifies  the 
body,  so  doth  money,  in  the  state,  quicken  its  action,  feed  from 
abroad  in  the  time  of  dearth  at  home,  even  accounts  by  reason  of  its  di- 
visibility and  beautify  the  whole,  especially  the  particular  persons 
that  have  it  in  plenty."  Hume's  oft-quoted  image  has  a  sort  of  fam- 
ily resemblance  to  that  of  Petty :  "  It  is  the  oil  which  renders  the 
motion  of  the  wheels  more  smooth  and  easy." 


IMPORTANCE  OF  MONEY  SUPPL  T.  79 

'  improved  harbors,  roads,  and  manufactories.'  According 
to  such  views,  the  influence  of  the  gold  discoveries  must 
be  universally  beneficial— beneficial  not  merely  in  rela- 
tion to  the  countries  which  produce  the  cheap  money, 
but  in  a  still  more  eminent  degree  in  relation  to  those 
which  permanently  retain  it,  But,  in  spite  of  the  plau- 
sibilities of  the  Mercantile  Theory,  common  sense  no 
less  than  economic  science  will  continue  to  ask  how  the 
world  is  enriched  by  parting  with  its  real  wealth  ?  how 
the  well-being  of  Europe  and  Asia  is  promoted  by  part- 
ing with  the  materials  of  well-being,  receiving  in  return, 
not  materials  of  well-being,  not  augmented  supplies  of 
wool  and  tallow,  corn  and  provisions,  not  those  com- 
modities which  new  countries  are  specially  fitted  to  pro- 
duce, and  of  which  old  countries  are  pressingly  in  need, 
but  what  ?  increased  supplies  of  the  precious  metals : 
a  more  cumbrous  medium  of  exchange  !  "  And  again  he 
asks:  "Are  the  other  nations  of  the  world  destined  to 
continue  forever  laboring  in  the  service  of  the  gold  coun- 
tries, for  no  other  than  the  barren  reward  of  an  addition 
to  their  circulation?" — [Essays  on  Political  Economy, 
p.  45.] 

Such  is  the  objection  of  one  of  the  ablest  of  recent 
economists,  one,  moreover,  who  made  a  special  study  of 
the  effects  of  the  Californian  and  Australian  gold  discov- 
eries. What  can  be  opposed  to  this  view  of  the  case  ? 
The  following  is  the  serious  and  weighty  statement  of 
Mr.  Hume,  a  favorite  quotation  among  the  advocates 
of  increased  quantities  of  money  : 

"It  is  certain  that,  since  the  discovery  of  the  mines  in 
America,  industry  has  increased  in  all  the  nations  of 
Europe,  except  in  the  possessors  of  those  mines ;  and 
this  may  be  justly  ascribed,  amongst  other  reasons,  to 
the  increase  in  gold  and  silver. 


80  MONEY. 

"Accordingly  we  find  that,  in  every  kingdom  into 
which  money  begins  to  flow  in  greater  abundance  than 
formerly,  everything  takes  a  new  face  ;  labor  and  indus- 
try gain  life ;  the  merchant  becomes  more  enterprising, 
the  manufacturer  more  diligent  and  skillful,  and  even  the 
farmer  follows  his  plow  with  greater  alacrity  and  atten- 
tion. This  is  not  easily  to  be  accounted  for,  if  we  con- 
sider only  the  influence  which  a  greater  abundance  of 
coin  has  in  the  kingdom  itself  by  heightening  the  price 
of  commodities  and  obliging  every  one  to  pay  a  greater 
number  of  these  little  yellow  or  white  pieces  for  every- 
thing he  purchases.  And  as  to  foreign  trade,  it  appears 
that  great  plenty  of  money  is  rather  disadvantageous, 
by  raising  the  price  of  every  kind  of  labor. 

"  To  account,  then,  for  this  phenomena,  we  must  con- 
sider that,  though  the  high  price  of  commodities  be  a 
necessary  consequence  of  the  increase  of  gold  and  silver, 
yet  it  follows  not  immediately  upon  that  increase  ;  but 
some  time  is  required  before  the  money  circulates 
through  the  whole  state  and  makes  its  effect  to  be  felt 
on  all  ranks  of  people.  At  first  no  alteration  is  per- 
ceived ;  by  degrees  the  price  rises,  first  of  one  commod- 
ity and  then  another,  till  the  whole  at  last  reaches  a  just 
proportion  with  the  new  quantity  of  specie  which  is  in 
the  kingdom. 

"  In  my  opinion  it  is  only  in  this  interval,  or  interme- 
diate situation,  between  the  acquisition  of  money  and  rise 
of  prices,  that  the  increasing  quantity  of  gold  and  silver 
is  favorable  to  industry.  When  any  quantity  of  money 
is  imported  into  a  nation  it  is  not  at  first  dispersed  into 
many  hands,  but  is  confined  to  the  coffers  of  a  few  per- 
sons, who  immediately  seek  to  employ  it  to  advantage. 

"It  is  easy  to  trace  the  money  in  its  progress  through 


IMPORTANCE  OF  MONEY  SUPPL  Y.  81 

the  whole  commonwealth,  where  we  shall  find  that  it 
must  first  quicken  the  diligence  of  every  individual  be- 
fore it  increases  the  price  of  labor." 

But  the  largest  claim  for  the  advantages  of  an  in- 
creased production  of  the  precious  metals  is  that  put 
forward  by  Sir  Archibald  Alison  : 

"  The  two  greatest  events  which  have  occurred  in  the 
history  of  mankind  have  been  directly  brought  about  by 
a  successive  contraction  and  expansion  of  the  circulating 
medium  of  society.  The  fall  of  the  Koman  Empire,1  so 
long  ascribed,  in  ignorance,  to  slavery,  heathenism,  and 
moral  corruption,  was  in  reality  brought  about  by  a  de- 
cline in  the  silver  and  gold  mines  of  Spain  and  Greece. 

And  as  if  Providence  had  intended  to 

reveal  in  the  clearest  manner  the  influence  of  this 
mighty  agent  on  human  affairs,  the  resurrection  of  man- 
kind from  the  ruin  which  these  causes  had  produced  was 
owing  to  the  directly  opposite  set  of  agencies  being  put 
in  operation.  Columbus  led  the  way  in  the  career  of 
renovation  ;  when  he  spread  his  sails  across  the  Atlantic, 
he  bore  mankind  and  its  fortunes  in  his  bark.  .... 
The  annual  supply  of  the  precious  metal  for  the  use  of 
the  globe  was  tripled;  before  a  century  had  expired,  the 
prices  of  every  species  of  produce  were  quadrupled.  The 
weight  of  debt  and  taxes  insensibly  wore  off  under  the 
influence  of  that  prodigious  increase  ;  in  the  renovation 
of  industry,  the  relations  of  society  were  changed ;  the 
weight  of  feudalism  cast  off;  the  rights  of  man  estabj 
lished.  Among  the  many  concurring  causes  which  con- 
spired to  bring  about  this  mighty  consummation,  the 

1  Contrast  with  this  the  striking  fact  that  the  copious  index  to  Meri- 
vale's  work  does  not  contain  either  of  the  titles,  Coin,  Currency,  or 
Money. 

7* 


82  MONET. 

most  important,  though  hitherto  the  least  observed,  was 
the  discovery  of  Mexico  and  Peru. 

"  That  Great  Britain,  and  every  state  largely  concerned 
in  industrial  enterprises,  has  suffered  grievous  and  long 
continued  distress  since  the  peace  [1815],  is  unhappily 
too  well  known  to  all  who  have  lived  through  that  pe- 
riod. 

"  The  thoughtful  in  all  countries  had  their  attention 
forcibly  arrested  by  this  long  succession  of  disasters,  so 
different  from  what  had  been  anticipated  during  the  smil- 
.  ing  days  of  universal  peace,  and  many  and  various  were 
the  theories  put  forward  to  account  for  such  distressing 
phenomena.    The  real  explanation  of  them  is  to  be  found 
in  a  cause  of  paramount  importance  and  universal  opera- 
tion, though  at  the  time  unobserved — and  that  was  the 
simultaneous  contraction  of  the  monetary  circulation  of 
the  globe,  from  the  effects  of  the  South  American  revo- 
lution, and  of  the  paper  circulation  of  Great  Britain.  .  .  . 
"  If  the  circulating  medium  of  the  globe  had  remained 
stationary,  or  declining,  as  it  was  from  1815  to  1849  from 
the  effects  of  South  American  revolution  and  English 
legislation,  the  necessary  result  must  have  been  that  it 
would  have  become  altogether  inadequate  to  the  wants 
of  men ;  and  not  only  would  industry  have  been  every- 
where cramped,  but  the  price  of  produce  would  have 
universally  and  constantly  fallen.     Money  would  every 
day  have  become  more  valuable — all  other  articles  meas- 
ured in  money,  less  so ;  debts  and  taxes  would  have  been 
constantly  increasing  in  weight  and  oppression :  the  fate 
which  crushed  Rome  in  ancient,  and  has  all  but  crushed 
Great  Britain  in  modern,  times,  would  have  been  that  of 
the  whole  family  of  mankind. 


IMPORTANCE  OF  MONEY  8UPPL  Y.  83 

"All  these  evils  have  been  entirely  obviated,  and  the 
opposite  set  of  blessings  introduced,  by  the  opening  of 
the  great  reserve  treasures  of  nature  in  California  and 
Australia.  .  .  .  Three  years  only  have  elapsed  since 
Californian  gold  was  discovered  by  Anglo-Saxon  enter- 
prise, and  the  annual  supply  has  already  come  to  exceed 
£25,000,000.  Coupled  with  the  mines  of  Australia  and 
the  Ural  mountains,  it  will  soon  exceed  thirty,  perhaps 
reach  forty  millions !  Before  half  a  century  has  elapsed, 
prices  of  every  article  of  commerce  will  be  tripled,  enter- 
prise proportionally  encouraged,  industry  vivified,  debts 
and  taxes  lessened." — [History  of  Europe,  1851-52,  ch. 
i,§§  33-40.] 

I  have  given  the  text  of  Sir  A.  Alison's  remarks, 
though  with  some  abridgment,  because  any  paraphrase 
of  a  claim  so  extensive  would  necessarily  have  been 
deemed  a  caricature.  In  the  view  of  this  writer,  the 
decline  of  the  Roman  Empire  was  caused  by  the  failing 
production  of  the  mines  of  Spain  and  Thrace ;  the  long 
life  in  dea^h  of  the  Middle  Ages  was  due  to  the  scarcity 
of  the  circulating  medium  ;  the  revival  of  political  and  in- 
dustrial activity  in  the  16th  Century  had  its  origin  and 
motive  force,  not  in  the  invention  of  the  printing  press 
and  the  mariners  compass,  but  in  the  discovery  of  Po- 
tosi ;  the  rapid  increase  of  pauperism  and  the  decline  in 
the  condition  of  the  working  classes  after  the  Napoleonic 
wars,  was  the  result,  primarily,  not  of  the  exhaustion  of 
Europe  by  that  long  and  desperate  struggle  of  the  Old 
against  the  New,  not  of  vicious  systems  of  taxation,  but 
of  the  suspension  of  gold  and  silver  mining  industry  in 
Mexico  and  the  Spanish  South  American  states. 

And  from  the  condition  of  abject  misery  into  which 
the  world  was  plunged  by  this  cause,  relief  could,  in  the 
constitution  of  things,  have  come  in  but  one  way,  not 


84  MONEY. 

through  increase  of  public  or  private  virtue,  not  by  ad- 
vances in  the  industrial  arts,  not  through  industry  or 
through  international  peace,  but,  as  it  in  fact  came, 
through  the  accidental  discovery  of  gold  at  Sutter's  Mill 
in  California,  in  1847. 

Nor  must  Sir  A.  Alison's  views  on  this  subject  be 
regarded  as  singular  and  exceptional.  A  large  party  in 
England,  all  through  the  controversy  on  the  resumption 
of  specie  payments  and  the  successive  renewals  of  the 
Bank  Charter,  down  to  1841,  maintained  the  vital  ne- 
cessity of  securing  the  increase  of  the  circulating  me- 
dium, to  keep  pace  with,  and  even  to  run  ahead  of,  the 
demands  of  trade  for  money,  regarding  the  consequences 
of  a  failure  to  effect  this  object  as  involving  the  worst 
industrial  and  social  disasters. 

Nor  is  the  view  of  the  importance  of  maintaining  the 
volume  of  the  circulating  medium  which  is  taken  by  a 
large  party  in  the  United  States,  for  which  Mr.  Henry  C. 
Carey1  furnishes  the  arguments,  less  pronounced  than 
that  of  the  so-called  "  Birmingham  School,"  of  which 
the  eloquent  Mathias  Attwood  was  the  leader  in  the 
English  Currency  battles  of  1819,  1822,  and  1832.  But 
as  the  attention  of  this  party  is  directed  to  the  increase 
of  Paper  Money,  we  may  defer  the  consideration  of 
their  position. 


How  much  of  economical  truth  is  there  in  the  claim 
that  the  volume  of  Money  should  be  kept  good  from  age 
to  age? 


1  See  his  tract:  "The  Finance  Minister  and  the  Currency,"  a  re- 
view of  Mr.  II.  McCulloch's  administration  of  the  Treasury  Depart- 
ment. 


IMPORTANCE  OF  MONEY  SUPPLY.  85 

In  the  first  place  it  must  be  admitted- — what  is  too  apt 
to  be  overlooked — that  the  advocates  of  Hard  Money, 
so  called,  are  in  fairness  estopped  from  treating  with 
contempt  as  they  are  prone  to  do,  claims  like  those  of 
Sir  Archibald  Alison.  Writers  who  regard  an  inflation 
of  the  currency  through  excessive  issues  of  paper  money 
as  the  sufficient  cause  of  overwhelming  national  disaster, 
paralyzing  the  nerves  and  sinews  of  industry,  corrupting 
public  and  private  morals,  and  perverting  every  instinct, 
social  or  economical,  to  mischievous  effects,  have  no 
right  to  treat  as  absurd  the  largest  assertion  respecting 
the  evils  of  a  reduction  of  the  volume  of  money,  through 
a  stoppage  of  the  sources  of  supply,  such  as  took  place 
in  consequence  of  the  invasion  of  the  Roman  Empire  by 
the  barbarians,  and  of  the  Mexican  and  South  American 
revolutions. 

Perhaps  we  shall  get  a  better  view  of  the  subject  by 
confining  ourselves  to  the  claim  made  in  favor  of  a  pro- 
gressive increase  of  money,  keeping  in  advance  of  the 
demands  of  trade,  and  hence  effecting  a  gradual  reduc- 
tion of  its  value. 

To  this,  it  will  be  observed,  three  distinct  advantages 
are  attributed  by  the  writers  we  have  quoted. 

The  first  is  that  indicated  by  Mr.  Hume.  Whereas 
Mr.  Eicardo  assumed,  for  the  purposes  of  his  argument 
in  the  bullion  controversy,  that  the  distribution  of  the 
precious  metals  would  take  place  throughout  the  whole 
commercial  world,  and  among  the  industrial  classes 
of  each  nation  by  turns,  with  no  appreciable  interval, 
Mr.  Hume  asserts  that  some  time  is  actually  required 
before  the  new  money  circulates  through  the  commercial 
body  and  makes  its  influence  felt  on  all  ranks  of  people 
and  all  sorts  of  commodities.  In  this  Mr.  Hume  antici- 
pated the  best  results  of  recent  thinking  and  investiga- 
tion. 


86  MONEY. 

Such  an  effect,  says  M.  Chevalier,  must  proceed,  as  it 
were,  by  jerks;  and  he  elsewhere  uses  the  figure,  as 
translated  by  Mr.  Cobden,  "  a  series  of  rebounds  " — per- 
haps we  might  say,  successive  action  and  reaction — to 
describe  the  progress,  between  1849  and  1859,  of  the  dif- 
fusion of  the  money  from  the  Californian  and  Australian 
mines.  Prof.  Cairn£s,  in  his  able  essays  on  the  "Gold 
Question,"  published  in  1859  and  1860,  has  also  shown 
that  the  effects  of  gold  discoveries  proceed,  not  only 
from  one  class  of  commodities  to  another,  but  from  one 
country  to  another,  with  appreciable  intervals,  allowing 
important  economical  effects  to  be  produced  meanwhile.3 

Now,  in  the  course  of  this  retarded  distribution,  Mr. 
Hume  discovers  the  possibility  of  an  influence  highly 
beneficial,  while  it  lasts,  upon  the  industry  of  a  country. 
In  the  interval,  or  intermediate  situation,  between  the 
acquisition  of  money  and  the  rise  of  prices,  a  stimulus  is 
given  to  enterprise  which  causes  everything  to  take  on  a 
new  face;  labor  and  industry  to  gain  life;  the  mer- 
chant to  become  more  enterprising;  the  manufacturer 
more  diligent  and  skillful,  and  even  .the  farmer  to  follow 
his  plow  with  greater  alacrity  and  attention. 

It  seems  to  me  that  this  view  of  the  subject  commends 
itself  as  both  rational  and  thoroughly  practical. 

The  Eicardian  economist,  looking  at  money  as  a  tool 
for  a  specific  and  highly  technical  purpose — and,  in  gen- 
eral, we  cannot  too  strongly  insist  upon  this  view — de- 
clares that  he  sees  no  advantage  in  an  increase  of  money 
above  its  former  level.  If  money  gains  in  amount,  it 
loses  in  value ;  more  of  it  only  purchases  the  same  quan- 
tity of  commodities.  On  the  other  hand,  Mr.  Hume,  as 
.  a  moral  philosopher,  having  his  attention  strongly  fixed 

1  See  pp.  150-7. 


IMPORTANCE  OF  MONEY  SUPPL  Y.  87 

on  the  power  which  hope  and  courage  have  to  call  forth 
the  utmost  energies  of  men,  finds  in  an  increase  of  money 
the  possibility  of  a  gain  which  may  more  than  compen- 
sate mankind  for  the  labor  expended  in  raising  the  ad- 
ditional gold  and  silver  from  the  mine.  It  does  not  need 
to  be  said  that  Mr.  Hume  had  in  view  an  increase  of 
money  not  so  great  as  to  bewilder  the  producer  and  the 
trader  through  a  fiercely  rapid  advance  of  prices,  or  to 
render  sober  business  calculations  impossible.  When 
courage  and  enterprise  are*  exalted  to  rashness,  through 
a  stimulation  proceeding  to  intoxication,  the  effects  are 
only  prejudicial.  Within  certain  limits,  however,  and 
these  not  necessarily  narrow,  there  are  illusions  which 
inspire  exertion  because  they  dignify  and  beautify  the 
objects  of  exertion ;  evoking  efforts  which  would  not 
otherwise  be  put  forth,  yet  from  which  there  are  no  in- 
jurious reactions,  inasmuch  as  they  are  thoroughly  com- 
patible with  the  moral  and  physical  nature  of  man. 

It  is  to  be  observed  that  Mr.  Hume  confines  the  ad- 
vantage of  a  given  increase  in  the  volume  of  the  precious 
metals  to  the  interval  required  to  secure  its  uniform  dif- 
fusion among  all  classes,  and  its  equal  effect  upon  all 
prices.  This  view  is  taken  by  Mr.  Jacob,  the  author  of 
the  "Inquiry  into  the  Precious  Metals,"  who  declares 
that  "an  impulse  would  be  given  to  the  productive  pow- 
ers which  would  continue  so  long  as  the  increase  of  the 
precious  metals  should  continue  to  lessen  their  relative 
value  to  other  commodities." — [P.  251.] 

We  may  conceive  such  an  increase  of  the  precious 
metals  as  Mr.  Hume  has  in  contemplation,  through  dis- 
coveries of  new  mines,  or  through  the  invention  of  new 
mechanical  or  chemical  agencies  for  working  mines,  as 
occurring  once  in  a  human  generation,  quickening  enter- 
prise, inciting  to  mental  activity  and  breaking  up  the 


88  MONEY. 

scale  of  habit  wliicli  tends  to  form  over  social  and  indus- 
trial organizations  ;  or,  we  may  conceive  such  a  relation 
between  the  current  production  of  the  precious  metals 
and  the  volume  in  existence,  that  the  process  which 
Mr.  Hume  describes  may  be  continually,  though  quietly, 
going  forward  from  age  to  age. 

It  may  be  said :  were  such  a  cause  to  operate  contin- 
uously, it  would  come  to  be  anticipated,  would  be  taken 
into  account  in  business  calculations,  and  hence,  the  in- 
centive which  Mr.  Hume  discovers  in  the  occasional  in- 
crease of  the  precious  metals  would  cease  to  be  exerted 
by  a  continuous  enlargement  of  the  volume  of  money. 

To  a  certain  extent  this  would  prove  true  in  the  situa- 
tion supposed;  but  the  objection,  which  is  in  the  spirit 
of  a  great  deal  of  accepted  reasoning  upon  economical 
subjects,  fails  to  recognize  the  limitations  of  the  human 
mind.  The  operations  involved  in  mental  discount,  or 
enlargement  to  a  scale,  are  among  the  most  difficult 
which  ordinary  men  are  called  to  perform ;  and  in  either 
of  these  most  persons  fail  entirely.  It  is  in  this  way,  as 
we  shall  have  occasion  to  note  hereafter,1  that  the  princi- 
pal mischiefs  of  fluctuating  paper  money  are  inflicted. 

A  second  advantage  would  seem  to  be  claimed  by  Sir 
Archibald  Alison  for  an  increase  of  the  precious  metals 
in  use  as  money,  namely,  a  diminution  in  the  rate  of  tax- 
ation, as,  according  to  this  writer,  it  was  the  reduction 
of  the  volume  of  money,  from  the  time  of  Augustus  for- 
ward, which  increased  the  taxes  of  the  Empire  ;  while  a 
like  cause  enhanced  the  burden  of  taxation  in  England 
after  the  Napoleonic  wars. 

Except  so  far  as  taxation  results  from  the  necessity  of 
paying  the  interest  or  principal  of  public  debts,  it  is  diffi- 

1  See  pp.  385-7. 


IMPORTANCE  OF  MONEY  SUPPL  Y.  89 

cult  to  see  how  the  cause  adduced  can  have  any  consider- 
able effect  in  this  direction.  Taxes  are  the  means  of  fur- 
nishing the  revenue  of  government.  The  revenue  of  gov- 
ernment is  to  meet  current  expenditures  for  a  vast  range 
of  commodities  and  services.  If  the  volume  of  money 
is  increased  and  its  purchasing  power  diminished,  the 
prices  of  the  commodities  purchased  by  government  will, 
it  is  to  be  presumed,  advance  correspondingly.  During 
the  interval  spoken  of  by  Mr.  Hume,  the  prices  of  ser- 
vices— wages — may  indeed  not  advance  with  equal  rapid- 
ity, and  thus,  in  the  language  of  Mr.  Huskisson,  "  a  saving 
accrue  to  the  state  from  paying  the  wages  of  valor,  talent, 
industry,  and  labor,  in  a  depreciated  currency,"  but  this 
gain  could  not  be  long  or  greatly  reckoned  upon. 

It  is  in  the  third  claim  made  by  the  advocates  of  an 
increase  of  money,  viz.,  the  reduction  in  the  pressure  of 
indebtedness  and  of  fixed  charges  of  all  kinds — rents, 
pensions,  annuities,  etc. — that  the  main  strength  of  their 
position  lies.  In  Mr.  Hume's  day,  the  body  of  indebted- 
ness, public  and  private,  was  comparatively  small ;  in  Sir 
A.  Alison's  time  it  had  assumed  vast  dimensions,  and 
has  been  steadily  increasing  ever  since,  not  only  abso- 
lutely, but  relatively  to  other  financial  interests. 

The  public  indebtedness  of  the  civilized  world,  to- 
day, probably  stands  between  twenty-five  and  thirty 
thousand  millions  of  dollars  of  American  money.  The 
volume  of  private  debts,  including  the  capitalized  value 
of  fixed  charges — loans,  annuities,  etc. — is  vastly  greater. 
Nearly  the  whole  of  this  body  of  obligations  is  payable, 
interest  and  principal  (where  the  principal  sum  is  to  be 
paid1)  in  Money.  The  question  whether  the  supply  of 
money  shall  increase  or  decrease  is,  then,  the  question 

1  The  English  Consols  are  merely  perpetual  annuities. 


90  MONEY. 

whether  the  burden  of  these  more  or  less  permanent 
charges  shall  be  diminished  or  enhanced. 

You  loan  to  the  city  of  Baltimore  $10,000,  receiving 
therefor  a  bond  payable  in  thirty  years,  with  interest  at 
six  per  cent,  annually,  meanwhile.  The  city  expends  the 
$10,000  borrowed  in  purchasing  supplies  for  municipal 
purposes,  brick  for  building,  stone  for  paving  and  curb- 
ing, pipe  for  drainage,  posts  and  lamps  for  lighting. 
Going  back  further  we  see  that  what  the  city  really  bor- 
rows is  days'  labor.  If  ordinary  labor  is  worth  $1.25  a 
day,  you,  in  effect,  lend  to  the  city  eight  thousand  days' 
labor,  either  of  men  in  the  quarries  or  kilns,  where  the 
stone  and  the  brick  are  gotten  out,  or  in  the  streets  and 
on  the  partly  erected  walls  of  the  public  buildings,  lay- 
ing the  stone  and  brick  for  municipal  uses.  You  pay 
these  men  their  wages  now  and  bid  them  work  for  the 
city. 

In  return,  what  does  the  city,  in  effect,  promise  to  do 
for  you?  To  pay  you  eight  thousand  days'  labor  at  the 
end  of  thirty  years,  and,  meanwhile,  to  let  you  enjoy 
every  year  four  hundred  and  eighty  days'  labor,  which 
you  take  out  to  suit  yourself,  whether  of  men  dredging 
for  oysters  in  the  bay,  or  working  on  your  house,  or 
raising  wheat  for  you  in  Illinois. 

Such,  in  the  economical  view,  was  your  contract  with 
the  city ;  but,  through  the  use  of  a  "  Standard  for  Deferred 
Payments,"  these  quantities  are  expressed  in  terms  of 
money,  and  the  legal  obligation  of  the  city  to  you  is  to  be 
satisfied  with  money  only.  If,  then,  while  that  bond  is 
running  to  maturity,  the  supply  of  the  precious  metals  is 
to  be  either  decreased  or  increased  (by  supply  I  mean 
here  the  volume  relatively  to  the  demand),  you  receive 
more  or  fewer  days'  labor  to  enjoy,  from  year  to  year, 
and  the  city  will  pay  you  more  or  fewer  days'  labor  at 
the  end  of  the  term,  in  final  discharge  of  the  obligation. 


IMPORTANCE  OF  MONET  SUPPL  Y.  91 

It  is  the  fact  of  a  vast  body  of  outstanding  indebted- 
ness which  gives  its  chief  importance  to  the  current  pro- 
duction of  the  precious  metals.  That  gold  and  silver 
should  be  yielded  in  exactly  that  amount,  from  year  to 
year,  from  generation  to  generation,  which  will  serve  to 
keep  the  value  of  money  uniform,  is  not  to  be  expected. 
We  have  seen  the  causes  which  tend,  with  varying  force, 
to  reduce  the  use  for  money  in  trade,  while  other  causes 
operate  to  increase  "the  duty"  (to  use  Mr.  McLeod's 
phrase)  of  the  existing  volume.  At  the  same  time,  the 
diversification  of  production  and  the  extension  of  trade 
make  their  urgent  demand  for  an  increased  medium  of 
exchange.  While  these  causes  operate  to  subject  to  con- 
tinual change  the  demand  for  money,  the  production 
which  is  to  furnish  the  required  supply  is,  in  a  high  de- 
gree, spasmodic,  and  has  at  times  almost  altogether 
ceased. 

We  are  not  to  expect,  therefore,  that  the  value  of 
money  will  remain  constant  through  any  long  period. 
One  of  the  two  parties  to  long  contracts1  will,  in  all 
probability,  lose  while  the  other  gains,  by  the  change  in 
values.  The  losses  thus  sustained  may  be  slight ;  they 
may  be  serious,  even  ruinous. 

The  question  arising  out  of  the  consideration  of  this 
possibility,  this  probability,  that  the  burden  of  the  body 
of  indebtedness,  public  and  private,  existing  at  any  given 
date,  will  be  enhanced  or  diminished  appreciably,  per- 
haps enormously,  before  it  comes  to  maturity,  by  changes 
in  the  value  of  money,  whether  the  economist  should 
look  upon  the  two  possible  results  with  equal  regret,  or 
should,  upon  economical  grounds  purely,  regard  the  one 

1  For  Prof.  Jevons's  proposition  for  obviating  the  effects  of  such 
fluctuations,  see  p.  159. 


92  MONEY. 

or  the  other  as  preferable,  or  even,  it  may  be,  as  positive- 
ly desirable,  is  a  question  which  has  been  made  the  sub- 
ject of  animated  controversy. 

Mr.  J.  E.  McCulloch,  the  English  economist,  has  per- 
haps taken  the  strongest  ground  in  favor  of  the  desir- 
ableness x  of  a  gradual  reduction  in  the  burden  of  debts, 
through  the  natural  increase  of  the  volume  of  the  pre- 
cious metals.  He  maintains  that  a  depreciation  of  the 
circulating  medium,  through  this  cause,  promotes  indus- 
try, diminishing  the  weight  of  the  obligations  which 
press  upon  the  producing  classes,  whether  employers  or 
employed,  giving  them  the  use,  at  a  lower  rate  in  produce, 
(because  at  a  fixed  rate  in  money),  of  all  the  agents — 
land,  buildings,  stock — which  they  hold  by  hire  or  lease 
for  terms  of  years,  from  those  who  are  not  themselves 
personally  engaged  in  production.  At  the  same  time, 
all  that  part  of  the  taxation  of  government  which  goes  to 
the  payment  of  the  principal  and  interest  of  public  in- 
debtedness, is  reduced  in  its  weight  upon  the  whole  com- 
munity, whether  engaged  in  active  production  or  not. 

Now,  "why,"  asks  Mr.  Maclaren,2  "should  the  power 
to  make  a  fortune  be  cherished,  at  the  expense  of  a  for- 
tune when  made?" 

Please  observe  that  the  question  here  is  not,  whether 
by  any  act  of  government,  or  association  of  debtors,  the 
burden  of  debts  shall  be  reduced.  That  question  we 
shall  see  arising  in  connection  with  the  debt  incurred  by 

"  Though,  like  a  fall  of  rain  after  a  long  course  of  dry  weather, 
it  may  be  prejudicial  to  certain  classes,  it  is  beneficial  to  an  incom- 
parably greater  number,  including  all  who  are  actively  engaged  in 
industrial  pursuits;  and  is,  speaking  generally,  of  great  public  or 
national  advantage." — [His  article  on  the  "Precious  Metals"  in  the 
Encyclopaedia  Brittanica.] 

a  History  of  the  Currency,  p.  312. 


IMPORTANCE  OF  MONEY  SUPPL  Y.  93 

England  in  the  Napoleonic  wars,  and  that  incurred  by 
the  United  States  in  the  recent  civil  conflict.  It  is  quite 
a  different  matter.  The  scaling  down  of  debts  by  a  pur- 
posed depreciation  of  the  circulation,  through  excessive 
issues  of  paper  money,  is  only  a  form  of  practical  repu- 
diation, which  has  always  the  sting  of  injustice  about  it, 
and  always  draws  a  retribution  after  it.1 

The  question  we  are  now  considering  is,  whether  such 
an  effect,  as  the  result  of  natural  causes,  where  no  ill- 
faith  can  be  alleged, — purely,  ictus  del — is  a  proper  sub- 
ject of  congratulation  on  strictly  economical  considera- 
tions :  whether,  in  short,  as  Mr.  Maclaren  puts  it,  the 
power  to  make  a  fortune  should  be  cherished  at  the  ex- 
pense of  fortunes  which  have  been  made;  whether,  if 
the  mortgage  which  the  representatives  of  past  produc- 
tion, for  such  the  holders  of  these  obligations  preponder- 
atingly  are,  have  upon  the  fruits  of  current  industry  can 
be  paid  off  on  reduced  terms,  without  any  violation  of 
faith,  the  world  may  be  expected  .to  gain  economically 
thereby. 

Having  conducted  the  inquiry  to  this  point,  we  reach 

1  Some  writers  .would  appear  to  shrink  from  the  discussion  of  the 
effects  of  an  increase  of  the  precious  metals,  lest  they  should  give 
encouragement  to  schemes  for  reducing  the  burden  of  debts  by  acts 
of  legislation.  On  this  point,  Mr.  Horton's  remark  seems  to  me 
thoroughly  just  and  manly : 

"  I  am  well  aware  of  the  demagogue  spirit  which  is  the  legitimate 
child  of  the  Legal  Tender  Acts,  and  which  has  sought  to  dishonor 
the  country  by  appeals  to  the  baser  motives  of  the  debtor  class.  I 
know  the  danger  of  appearing  to  give  the  support  of  science  to  that 
spirit.  On  the  other  hand,  I  have  confidence  in  truth  and  in  the 
honesty  and  acuteness  of  my  countrymen;  and  I  think  the  safe 
course  for  the  advocates  of  sound  currency  is  to  grasp  this  nettle 
firmly.  The  truth  will  bear  to  be  seen ;  the  greatest  danger  is  in 
misrepresenting  it." — [Silver  and  Gold,  p.  70.] 

8* 


94  MONEY. 

the  strict  limits  of  the  department  of  money.  The  mat- 
ter is  to  be  decided  as  a  question  in  general  economics. 
Certainly  I  think  no  one  could  refuse  to  admit  that,  if  it 
were  an  issue  between  having  the  pressure  of  the  whole 
body  of  indebtedness  diminished  by  natural  causes,  or 
increased,  the  former  result  would  be  preferable.  If  it 
were  a  question  between  sacrificing  the  present  to  the 
past,  or  the  past  to  the  present,  all  would  agree  in  say- 
ing, let  the  dead  bury  its  dead.  Whether  it  is  a  result 
positively  desirable,  on  economical  grounds,  that  debts 
should  undergo  a  progressive  depreciation,  might  fairly 
be  disputed.  The  weight  of  opinion,  among  economical 
writers  of  reputation,  seems  to  be  in  the  affirmative.  M. 
Chevalier,  with  great  emphasis,  gives  his  ample  authori- 
ty to  this  view : 

"  Such  a  change  will  benefit  those  who  live  by  current 
labor ;  it  will  injure  those  who  live  upon  the  fruits  of  past 
labor,  whether  their  fathers'  or  their  own.  In  this,  it 
will  work  in  the  same  direction  with  most  of  the  develop- 
ments which  are  brought  about  by  that  great  law  of  civ- 
ilization to  which  we  give  the  noble  name  of  progress.1 

THE  MONEY  SUPPLY  AND  THE  BATE  OF  INTEREST. 

Still  another  advantage  which  is  at  times  claimed  for 
a  progressive  increase  of  the  stock  of  money,  is  that  it 
lowers  the  rate  of  interest.  This  opinion  is  so  widely 
spread,  that  it  deserves  a  careful  examination : 

Interest  is  compensation  for  the  use  of  capital;  not 
necessarily  of  money.2  Money  is  only  one  of  many  forms 

1  La  Monnaie,  p.  760. 

2  The  inveterate  disposition  to  regard  the  rate  of  interest  as  de- 
pending on  the  supply  of  money  is  thus  explained  by  Mr.  Mill: 
"Money,   which   is  so   commonly  understood  as   the   synonym  of 


MONEY  SUPPL  Y  AND  RATE  OF  INTEREST.       95 

of  capital ;  and  in  loans  is  commonly  but  the  agent  for 
the  transfer,  from  lender  to  borrower,  of  other  special 
forms  of  capital.  In  any  philosophical  view,  it  is  not 
the  money  but  the  capital,  in  its  special  forms,  which  is 
lent  and  borrowed. 

If  I  borrow  a  thousand  dollars  in  money,  the  chances 
are  a  thousand  to  one  that  I  immediately,  or  shortly, 
turn  the  money  into  articles  suitable  for  my  business, 
my  personal  necessities,  etc.,  etc.  These  were  what  I 
really  wanted :  the  money  was  but  the  means  to  that 
end.  These  are  what  I  really  pay  interest  upon,  not 
upon  the  money. 

In  the  modern  commercial  organization  money  is  not 
always,  nor  even  usually,1  the  agent  in  the  transfer  of 
capital  from  lender  to  borrower.  Thus,  a  country  mer- 

wealth,  is  more  especially  the  term  in  use  to  denote  it  when  borrow- 
ing is  spoken  of.  ...  Borrowing  capital  is  universally  called 
borrowing  money;  the  loan  market  is  called  the  money  market; 
those  who  have  their  capital  disposable  for  investment  or  loan  are 
called  the  moneyed  class ;  and  the  equivalent  given  for  the  use  of 
capital,  or  in  other  words,  interest,  is  not  only  called  the  interest  of 
money,  but,  by  a  grosser  perversion  of  terms,  the  value  of  money. 
This  misapplication  of  language,  assisted  by  some  fallacious  appear- 
ances which  we  shall  notice  and  clear  up  hereafter,  has  created  a 
general  notion  among  persons  in  business,  that  the  value  of  money, 
meaning  the  rate  of  interest,  has  an  intimate  connection  with  the 
value  of  money  in  its  proper  sense,  the  value  or  purchasing  power  of 
the  circulating  medium." — [Pol.  Econ.,  Ill,  viii,  2.] 

1  I  am  surprised  to  see  this  remark  of  Prof.  Perry :  "  Value  in  any 
other  form  than  money  is  not  generally  suitable  for  loaning." — [Pol. 
Econ.,  p.  236.]  And  again,  "  Thus  we  see  the  reason  why  govern- 
ments, corporations  and  individuals,  when  they  borrow,  borrow 
money." — [P.  237.]  I  do  not  believe  that  two  per  cent,  of  the  dis- 
counted paper  in  the  banks  of  New  York  to-day  was  given  for 
money  paid.  As  will  be  said  further  on,  money  is  used  to  a  greater 
extent  in  paying  debts  than  in  contracting  them. 


96  MONEY. 

chant  comes  to  the  city. and  goes  about  making  his  pur- 
chases for  the  month:  he  buys  dry  goods,  groceries, 
hardware,  etc.,  etc.,  and  in  each  case  he  gives  his  note — 
promising,  for  value  received,  to  pay  so  much  with  interest. 
No  money  has  passed  in  the  transaction.  The  interest 
is  not  paid  upon  money  loaned,  but  upon  merchandise 
bought. 

In  this  distinction,  that  interest  is  paid  for  the  use  of 
capital,  not  usually  of  money,  we  see  the  insufficiency  of 
Aristotle's  objections  to  usury,  viz.,  that,  as  money  does 
not  produce  money,  no  gain  or  increase  should  be  ex- 
pected upon  the  loan  of  money.  It  is  true  that  money 
does  not  beget  money1 ;  but  capital  does  manifestly  beget 
capital.  If  a  man  borrows  a  thousand  ducats  and  ties 
them  up  in  a  bag,  he  will  not  find  any  little  ducats  in  the 
bag  at  the  end  of  a  year ;  but  if  he  purchases  with  the 
ducats  a  flock  of  sheep,  he  will,  with  proper  attention, 
have  lambs  enough  at  the  end  of  the  year  to  pay  a  hand- 
some interest  on  the  loan,  and  make  a  handsome  profit 
for  himself.  If  he  turns  the  ducats  into  corn  he  will  find 
it  bringing  forth,  some  thirty,  some  sixty,  and  some  an 
hundred  fold ;  out  of  which  he  may  abundantly  compen- 
sate the  owner  of  the  ducats,  the  laborers  who  have 
plowed,  sown,  and  reaped,  and  still  retain  something 
for  himself.  Yery  seldom  does  a  man  borrow  money  to 
use  it,  as  money,  through  anything  like  the  term  of  his 
loan.  When  he  does  so,  as  brokers,  for  example,  some- 
times do,  he  may  to  Antonio's  question,  "Is  your  gold 
and  silver  ewes  and  rams?"  return  Shylock's  answer, 
"I  cannot  tell ;  I  make  it  breed  as  fast." 

1  "  Monstruosum  est  et  contra  naturam  quod  res  infecunda  pariat, 
quod  res  sterilis  a  tota  specie  fructificet  vel  multiplicetur  ex  se,  eujus- 
modi  est  pecunia." — [Nicholas  Oresme,  Tractatus  de  Origine,  Natura, 
Jure,  et  Mutationibus  Monetarum.] 


MONEY  SUPPLY  AND  RATE  OF  INTEREST.      97 

In  the  same  light  we  see  the  futility  of  the  notion  that, 
the  rate  of  interest  is  to  be  permanently  reduced  by 
augmenting  the  supply  of  money.  The  rate  of  interest 
depends  on  the  supply  of  capital  in  all  forms  suited  to 
productive  uses,  compared  with  the  opportunity  to  use 
capital  productively.  There  may  be  a  low  rate  of  inter- 
est with  little  capital,  in  a  country  where  industry  is  de- 
pressed by  bad  government  or  social  disorder ;  there 
may  even  be  a  high  rate  of  interest  with  great  capital, 
where  natural  resources  are  abundant  and  the  spirit  of 
enterprise  is  continually  incited  by  success.  "What  "the 
West "  wants  is  more  capital ;  what  it  thinks  it  wants  is 
more  money.  Capital  is  there  relatively  scarce  and  the 
rate  of  interest  consequently  high,  because  the  country 
is  new,  the  natural  advantages  abundant,  the  people  en- 
terprising. "Were  the  people  less  enterprising,  there 
might  be  capital  enough  for  all  their  uses,  and  interest 
would  then  be  low.  Were  the  natural  advantages  less 
abundant,  there  might  be  capital  enough  to  furnish  all 
the  tools  and  materials  which  labor  could  profitably  em- 
ploy, and  interest  would  then  be  low;  and  again,  when 
those  communities  shall  become  older,  they  will  natural- 
ly have  accumulated  larger  stores  of  tools  and  materials  ; 
will  have  their  warehouses,  furnaces,  shops,  bridges, 
fences,  and  roads  constructed,  and  then  there  will  be 
capital  enough  to  allow  a  low  rate  of  interest.  Interest 
was  high  in  New  England  two  hundred  years  ago  for  the 
same  reason  that  makes  it  high  now  at  the  West.  The 
people  had  inherited  little  and  had,  therefore,  much  to 
make  for  themselves,  and  tools  and  materials  were  thus 
in  scant  supply  in  comparison  with  the  demand,  i.  e., 
the  occasion  for  their  use. 

But  while  the  average  rate  of  interest  is  determined 
thus  in  the  supply  and  demand  of  capital  in  its  various 
9 


98  MONEY. 

forms,  it  is  true  that  temporary  effects  for  days,  for 
weeks,  it  may  even  be  for  months,  are  produced .  by 
changes  in  the  supply  of  money.  This  is  due  to  two 
considerations :  first,  that  money  is,  as  has  been  said,  to 
a  certain  extent  the  agent  in  the  transfer  of  capital  from 
lenders  to  borrowers ;  and,  secondly,  because  money,  as 
the  standard  of  deferred  payments,  is,  to  a  much  greater 
extent,1  the  means  with  which  the  maturing  obligations 
of  borrowers  are  met. 

1  Due  to  the  fact  that  the  notes  given  by  retail  dealers  for  goods 
had  of  the  wholesale  merchants  are  not  generally  paid  [offset]  by 
other  notes  which  have  come  into  their  possession,  but  by  the  money 
which  they  have  collected  in  small  amounts  through  the  sales  of  their 
goods. 


CHAPTEE  V. 

THE  PEODUCTION  OF  THE  PEECIOUS  METALS. 

jSTo  treatment  of  the  subject  of  money  can  be  complete 
which  omits  a  survey,  of  the  existing  field  of  gold  and 
silver  production.  The  monetary  questions  which  now 
agitate  many  of  the  nations  of  the  world,  not  sparing 
America,  Asia,  or  Australia,  convulsing  some  with  the 
severest  throes  of  felt  or  apprehended  financial  distress, 
have  reference  primarily  to  the  facts,  the  startling  facts, 
of  the  present  yield  of  the  precious  metals.  Nor  can  we 
fully  gather  the  due  effect  of  recent  developments  with- 
out at  least  a  brief  review  of  the  past  production  of  gold 
and  silver. 

THE  FIELD  OF  PKODUCTION. 

When  we  consider  the  effects  upon  local  prices,  extend- 
ing often  to  serious  disturbances  of  international  com- 
merce, which  attend  the  rapid  increase  of  the  money  of 
the  world,  the  wide  geographical  distribution  of  the  pre- 
cious metals  becomes  a  fact,  not  alone  of  curious  inter- 
est, but  of  positive  economical  importance.  It  would  be 
easier  to  say  in  what  countries  gold  or  silver  had  not 
been  found  than  to  enumerate  those  where  one  or  both 
have  been  produced.  Even  in  economic  quantities, 


100  MONEY. 

there  are  few  considerable  countries  which  have  not,  at 
one  time  or  another,  contributed  to  the  world's  supply  of 
these  metals. 

"It  is  probable,"  says  Mr.  Jacob,  from  whose  "In- 
quiry into  the  Precious  Metals"  (1831)  I  shall  freely 
quote  throughout  the  present  and  the  two  succeeding 
chapters,  "  that  the  precious  metals  were  first  known  to 
mankind  in  the  eastern  parts  of  Asia  and  in  Egypt ;  but 
which  of  these  countries  is  entitled  to  a  priority  in  the 
discovery,  it  is  almost  impossible  to  determine." 

Of  all  the  continents,  Africa,  though  early  conspicuous 
for  its  production  of  both  gold  and  silver,  appears  to  be 
the  one  which  has  made,  within  recent  times — it  might 
almost  be  said  within  historic  times — the  smallest  con- 
tribution to  the  stock  of  the  precious  metals,  although 
the  name  of  an  obsolete  British  coin — the  Guinea — tes- 
tifies to  the  fame  of  the  gold  dust  of  a  portion  of  the 
western  coast.1  "We  are,"  says  Mr.  Jacob,  "disposed 
to  estimate  at  a  very  low  rate  the  whole  produce  of  gold 
from  Africa,  and  as  no  silver  is  known  to  be  extracted 
from  that  part  of  the  world,  in  an  estimate  of  the  pro- 
duction and  consumption  of  the  world  at  large  we  have 
not  thought  it  necessary  to  take  any  notice  of  either  the 
western  or  the  eastern  shore." — [P.  372.] 

Yet  the  mines  of  Africa  furnished  a  large  share  of 
the  gold  and  silver  produced  before  the  Christian  era. 
It  was  with  treasures  torn  from  the  temples  of  Egypt 
by  Cambyses  that  the  palaces  of  Susa  and  Persepolis 
were  built.  The  greater  portion  of  this  metallic  wealth 
had  been  obtained  in  commerce  with  the  Nubians  and 
Macrobians.  There  is  no  evidence  that  the  valley  of 

1  "  The  gold  that  has  reached  Europe  from  Africa,  has  consisted  of 
small  grains  stated  to  have  been  collected  from  the  streams  and  car- 
ried about  in  quills  as  an  article  of  traffic." — [Jacob,  p.  371.] 


PRODUCTION  OF  THE  PRECIOUS  METALS.     101 

the  Nile  below  the  cataracts  ever  yielded  the  precious 
metals;  while  the  complete  abandonment  of  the  fertile 
sources  of  metallic  wealth  above  appears  to  have  taken 
place  even  before  the  time  of  Alexander. 

The  mineral  wealth  of  Asia  Minor,  which  has  remained 
to  this  day  proverbial,  made,  in  fact,  but  a  slight  contri- 
bution to  the  world's  supply.  The  mines  of  Mt.  Tmolus 
and  the  gold  sands  of  the  Pactolus  were  early  exhausted. 
Neither  gold  nor  silver  was  produced  in  Palestine,  Phe- 
nicia,  and  the  land  reaching  to  the  frontier  of  Egypt. 
In  Arabia,  no  mines  of  the  precious  metals  are  known  to 
exist,  and*Mr.  Jacob  remarks  that,  were  any  found,  it 
would  probably  prove  unprofitable  to  work  them,  on  ac- 
count of  the  scarcity  of  fuel.  In  the  country  now  known 
as  Persia,  argentiferous  lead  is  said  to  exist  in  great 
abundance;  but  little  silver  is  produced.  "In  Afghanis- 
tan, gold,"  says  Mr.  Jacob,  "is  said  to  be  found  in  some 
of  the  streams  that  flow  from  the  mountains  of  Hindoo 
Cosh,  and  some  silver  in  the  country  of  the  Caffres ;  but 
nothing  is  known  as  to  the  quantity  of  either."  In  the 
Burman  empire  and  in  Thibet,  the  mining  of  the  precious 
metals  is  an  important  source  of  national  wealth.  In 
Cochin  China,  small  quantities  both  of  gold  and  silver 
continue  to  be  extracted  from  the  sands  of  the  rivers. 
The  extensive  territory  of  India  affords  little  either  of 
gold  or  silver,  "  None  is  found  within  the  government 
of  the  three  great  Presidencies." — [Jacob,  p.  375.]  The 
Malay  Peninsula  was  called  by  the  ancients  Chersone- 
sus  Aurea ;  but  if  it  ever  yielded  the  precious  metals  in 
quantity  to  justify  that  appellation,  little  or  none  is  now 
produced  there.  Of  China,  our  information  is  indefinite, 
though  the  quantity  of  silver  is  known  to  be  considerable. 
What  is  called  Syce  or  Sycee  silver  was  formerly  sup- 
posed to  be  wholly  of  Chinese  origin,  but  is  now  known 


102  MONEY. 

to  be  indifferently  either  Chinese  or  American  silver; 
which  has  undergone  the  process  of  refining  in  a  degree 
making  it  exceptionally  pure.  The  islands  of  the  Indian 
Ocean  yield  some  gold.  It  is  said  to  have  been  former- 
ly produced  in  Ceylon,  but  none  is  now  extracted ;  nor, 
says  Mr.  Jacob,  are  there  authentic  accounts  of  that 
metal  being  found  in  Java.  Sumatra  yields  gold  in  mod- 
erate amount,  both  from  the  washing  of  the  river  sands 
and  from  small  mines  in  the  mountains.1  Borneo  has 
long  been  celebrated  for  its  abundance  of  gold,  chiefly 
from  alluvial  deposits.  Gold  is  also  found  in  the  bed  of 
the  rivers  of  Celebes.  The  Phillipine  islands  produce 
a  moderate  amount.  Of  Japan  we  have,  from  Marco 
Polo,  and  early  travelers,  accounts  which  speak  of  large 
amounts  of  the  same  precious  metal ;  but  little  has  flowed 
into  the  channels  of  the  world's  commerce. 

Mr.  Jacob,  writing  about  1830,  estimated  the  whole 
product  of  Asia  at  not  above  £1,400,000  annually,  made 
up  of: 

380,000  oz.  gold        £3  5s.  £1,235,000 

260,000  oz.  silver  65.    -        -  65,000 

Silver  in  Turkey      -  -     100,000 

£1,400,000 


1  Prof.  Rogers,  in  his  notes  to  Adam  Smith  (i,  225),  quotes  from 
Sir  R.  Murchison's  "Siluria"  the  statement  that  gold  is  generally 
found  superficially,  silver  in  deep  mines.  "  Modern  science,  instead 
of  contradicting,  only  confirms  the  truth  of  the  aphorism  of  the 
patriarch  Job  which  thus  shadowed  forth  the  downward  persistence 
of  the  one,  and  the  superficial  distribution  of  the  other :  '  Surely 
there  is  a  vein  for  the  silver :  the  earth  has  dust  of  gold.'  "  Con- 
siderable exceptions  require  to  be  taken  to  this  statement.  An 
increasing  proportion  of  the  gold  produced  is  drawn  from  deep 
mines, 


PR  OD  UCTION  OF  THE  PRECIO  US  METALS.     103 

Nearly  all  the  principal  geographical  divisions  of  Eu- 
rope have,  at  an  earlier  or  later  age,  yielded  gold  or  sil- 
ver, though  in  some  the  mining  industry  has  never  as- 
sumed importance.  None  of  the  ancient  writers  speak 
of  gold  or  silver  in  Portugal,  as  distinct  from  Spain, 
though  a  little  gold  is  now  washed  from  the  sands  of  the 
Douro,  and  smaller  streams.  Southern  Italy  has  al- 
ways been  barren  of  the  precious  metals;  and,  while 
early  writers  record  the  washing  of  gold  from  the  sands 
of  the  Po,  none  has  been  produced  since  the  subjugation 
of  that  region  by  the  Romans.  The  islands  of  Sicily, 
Corsica,  Majorca,  Minorca,  and  Malta  are  also  destitute 
of  the  precious  metals,  but  Sardinia  has  furnished  some 
gold  and  much  silver.  Gold  and  silver  were  found  in 
England  and  Wales  centuries  before  the  Roman  con- 
quest, and  gold  is  still  produced  in  economic  quantities 
in  Cornwall.  In  the  reign  of  James  IV  and  James  Y  of 
Scotland,1  gold  was  taken  in  considerable  amounts  from 
the  earth  washed  down  from  the  Grampian  Hills.  "  The 
search,"  says  Mr.  Jacob,  "is  now  given  over;  but  bits 
are  still  found  accidentally." — [P.  158.]  In  Ireland  small 
amounts  of  silver  have  been  taken  out  in  Tipperary; 
and  it  is  stated  that  about  the  close  of  the  last  century 
about  £10,000  of  gold  was  obtained  from  the  alluvial 
soil  of  the  county  Wicklow.  Both  silver  and  gold 
have  been  mined  from  an  immemorial  period  in  Sweden 

1  Martin,  in  his  "  Description  of  the  Western  Islands,"  tries  hard, 
in  the  face  of  discouragement,  to  make  out  a  good  story.  "  I  shall 
not,"  he  says,  "  offer  to  assert  that  there  are  mines  of  gold  or  silver 
in  the  Western  Isles  from  any  resemblance  they  may  bear  to  other 
parts  that  afford  mines ;  but  the  natives  affirm  that  gold  dust  has 
been  found  at  Griminis  on  the  west  coast  of  the  isle  of  North  Vist, 
and  at  Copreaul  in  Harries,  in  which,  as  well  as  in  other  parts  of  the 
isles,  the  teeth  of  the  sheep  that  feed  there  are  dyed  yellow" 


104  MONEY. 

and  Norway,  though  the  product  yielded  is  not  believed 
to  have  been-  at  any  time  of  great  importance  for  the 
supply  of  commerce.  Mr.  Jacob  remarks  [p.  154]  that 
the  Northern  nations  of  Europe  appear  to  have  possessed 
more  gold  and  silver  during  the  Middle  Ages  than  was  to 
be  found  in  Germany,  France,  or  the  British  islands; 
but  there  is  reason  to  believe  that  this  abundance  was 
due  to  the  success  of  the  piratical  expeditions  which 
scourged  the  shores  of  so  many  countries,  and  in  part, 
also,  to  a  profitable  trade  with  Russia. 

The  country  of  Europe  most  productive  of  the  pre- 
cious metals,  but  especially  of  silver,  in  early  times,  was 
Spain.1  The  "Tarshish"  of  Scripture  is  quite  generally 
identified  as  a  portion  [of  this  peninsula.  The  amount 
of  gold  obtained  in  Spain  was  probably  never  consider- 
able. It  is  not  mentioned  by  Ezekiel  among  the  treas- 
ures brought  from  Tarshish.  The  productiveness  of  the 
Spanish  mines  continued  through  the  period  of  Eoman 
domination;  but  with  the  decline  of  the  Empire  the 
yield  of  the  precious  metals  greatly  diminished  or  ceased 
altogether.  "There  are  no  accounts,"  says  Mr.  Jacob, 
"  of  any  mines  being  worked  under  the  Suevic  or  under 
the  Gothic  monarchs  who  at  length  governed  that  coun- 

1  Diodorus  relates  an  absurd  story  about  the  discovery  of  silver 
through  the  accidental  burning  of  the  woods  on  the  Pyrenees,  the 
streams  of  molten  silver  running  down  the  sides  of  the  mountains. 
Almost  every  place  celebrated  for  the  precious  metals  has  some  tra- 
dition, more  or  less  improbable,  respecting  the  first  discovery  of  the 
treasure.  At  Potosi,  it  was  a  hunter  pulling  up  a  bush  which  he  had 
seized  to  steady  himself  by  in  ascending  the  mountain.  In  the 
Hartz  Mountains  it  was  a  horse  pawing  up  the  earth.  In  Saxony, 
glittering  particles  were  observed  among  the  dirt  on  the  wheels  of 
carts  which  had  passed  through  the  extensive  forest  in  which  the 
silver  was  concealed. 


PRODUCTION  OF  THE  PRECIOUS  METALS.     105 

try ;  nor  any  traces  of  works  in  mines  at  this  time  to  be 
seen,  that  are  not  evidently  of  Roman,1  of  Moorish,  or 
of  more  modern  construction." — [P.  146.]  The  revival 
of  the  productiveness  of  the  Spanish  mines  under  the 
Moors  was  probably  due  not  more  to  the  engineering 
skill  of  this  people  than  to  the  fact  that  their  conquests 
had  given  them  vast  numbers  of  Christian  slaves  who 
could  be  employed  in  the  mines  where  free  laborers 
would  not  consent  to  serve. 

We  know  little  of  ancient  mining  operations  in  France. 
The  Eomans  during  their  occupation  worked  mines  of 
silver  in  the  Pyrenees,  and  perhaps  in  Languedoc.  The 
Frankish  rulers  of  Lorraine  opened  extensive  mines  of 
silver  in  that  territory.  Silver  is  still  found  in  France, 
in  moderate  amount,  in  connection  with  lead. 

In  what  is  now.  Prussian  Silesia,  mines  of  silver  were 
discovered  at  a  very  early  date,  and  were  long  extensive- 
ly worked.  The  mines  of  Saxony2  and  the  Hartz  district 
were  discovered  about  the  tenth  century  of  the  Christian 
era,  and  are  still  productive.  Their  contributions  have 
never  ceased  to  be  of  importance  to  the  world's  supply 
of  silver,  though  overshadowed  after  the  fifteenth  cen- 
tury by  the  vast  resources  of  Mexico  and  Peru. 

The  mines  of  Hungary,  especially  at  Kremnitz,  began 

1  Mr.  Bowles  notes  that,  on  both  sides  of  the  Pyrenees,  the  shafts 
dug  by  the  Romans  are  easily  identified,  being  round;  while  the 
Moorish  shafts  are  square.     This  ingenious  writer  suggests  that,  in 
this,  each  people  followed  their  habits  in  respect  to  fortifications. 
The  Romans,  accustomed  to  the  use  of  the  battering  ram,  avoided 
angles;    the  Moors,  with  no  fear  of  such  attacks,  built  their  forts 
square. 

2  "  There  is  no  part  of  the  world  in  which  the  operations  of  min- 
ing are  conducted  with  more  skill,  economy  and  industry." — [Jacob, 
p.  139.] 

9* 


106  MONEY. 

to  be  worked  somewhat  earlier  than  those  of  Silesia  and 
the  Hartz ;  and  have  never  ceased  to  be  of  importance. 
The  mines  of  Austria,  the  richest  in  mineral  wealth  of 
all  the  countries  of  Europe,  were  among  the  chief  sources 
of  supply  during  the  Middle  Ages.  In  Transylvania,  es- 
pecially, the  rivers,  without  exception,  are  auriferous, 
and  numerous  gold  mines  are  still  productive.  In  the 
Bohemian  mountains  were  formerly  gold  washings ;  but 
the  yield  in  recent  times  has  been  small,  if,  indeed,  it 
was  ever  of  consequence.  Illyria  was  anciently  esteemed 
very  rich  in  gold,  and  Strabo  attributes  the  great  decline 
in  the  value  of  that  metal  in  Italy  to  the  produce  of  the 
Noric  Alps.  Gold  in  moderate  quantities  and  small 
amounts  of  silver  are  still  drawn  from  this  district.  Of 
the  gold  regions  of  Russia  Herodotus  has  left  a  glowing 
description ;  but  the  very  traces  of  former  workings  were 
for  two  thousand  years  lost,  and  gold  was  only  rediscov- 
ered at  the  beginning  of  the  eighteenth  century.  Greece, 
last  to  be  mentioned,  was  probably  the  first  of  Europe 
in  which  the  precious  metals  were  systematically  pro- 
duced. It  is  believed  that  the  Grecian  mines  were 
opened  by  Phenician  miners  and  capitalists,  first  in  the 
islands  of  the  Mediterranean,  next  upon  the  mainland 
and  especially  in  Attica,  and  lastly  in  Macedon  and 
Thrace.  It  was  with  the  gold  of  his  Thracian  mines 
that  Philip  bribed  the  orators  of  Athens  to  betray  the 
liberties  of  their  country. 

THE  ECONOMIC  CONDITIONS  OF  GOLD  AND  SILVER  PRODUCTION. 

Such,  as  we  have  hastily  surveyed  it,  was  the  field  of 
the  production  of  the  precious  metals  prior  to  the  dis- 
covery of  America.  Let  us,  for  a  moment,  consider  the 
economic  law  which  governs  this  branch  of  industry,  as 
it  is  well  stated  by  Mr.  Mill : 


PRODUCTION  OF  THE  PRECIOUS  METALS.     107 

"  Of  the  three  classes  into  which  commodities  are  di- 
vided, those  absolutely  limited  in  supply ;  those  which 
may  be  had  in  unlimited  quantity,  at  a  given  cost  of  pro- 
duction; and  those  which  may  be  had  in  unlimited  quan- 
tity, but  at  an  increasing  cost  of  production:  the  pre- 
cious metals,  being  the  produce  of  mines,  belong  to  the 
third  class.  Their  natural  value,  therefore,  is  propor- 
tional to  their  cost  of  production  in  the  most  unfavora- 
ble existing  circumstances :  that  is,  at  the  worst  mines 
which  it  is  necessary  to  work  in  order  to  obtain  the  re- 
quired supply.  A  pound  weight  of  gold  will,  in  the 
country  of  the  mines,  exchange,  on  the  average,  for  as 
much  of  every  other  commodity  as  is  produced  at  a  cost 
equal  to  its  own. 

"  If  gold  is  above  its  natural  or  cost  value,  money  will 
be  of  high  value,  and  the  prices  of  all  things,  labor  in- 
cluded, will  be  low.  These  low  prices  will  lower  the 
expenses  of  all  producers  :  but  as  their  returns  will  also 
be  lowered,  no  advantage  will  be  obtained  by  any  pro- 
ducer except  the  producer  of  gold,  whose  returns  from 
his  mine,  not  depending  on  price,  will  be  the  same  as 
before  ;  and  his  expenses  being  less,  he  will  obtain  extra 
profits  and  will  be  stimulated  to  increase  his  production. 

"  E  converso,  if  the  metal  is  below  its  natural  value, 
since  this  is  as  much  as  to  say  that  prices  are  high  and 
the  money  expenses  of  all  producers  unusually  great ; 
for  this,  however,  all  other  producers  will  be  compen- 
sated by  increased  money  returns  ;  the  miner  alone  will 
extract  from  his  mine  no  more  metal  than  before,  while 
his  expenses  will  be  greater." — [Political  Economy,  III, 
ix,  2.] 

The  foregoing  account  would  hold  good  in  all  produc- 
tion of  the  precious  metals  under  the  operation  of  the 


108  MONET. 

law  of  supply  and  demand.  But  in  the  early  ages,  es- 
pecially throughout  the  eastern  world,  the  production  of 
gold  and  silver  was,  as  I  conceive  it,  chiefly  non-eco- 
nomical. The  mines,  the  property  of  the  king,  were 
worked  by  his  subjects  who  were  equally  his  property, 
and  the  products  remained  his  peculiar  possession,  or 
were  devoted  to  sacerdotal  uses.1  Gold  and  silver  were 
regarded  as  an  end,  not  as  a  means ;  as  treasure,  not 
money.2  They  were  distributed  not  by  trade,  but  by 
war.  It  was  the  hand  of  the  conqueror  that  stripped 
them  from  palaces  and  temples.  If  they  were  taken  from 
the  store  of  the  monarch,  it  was  not  to  freight  the  cara- 
vans of  commerce,  but  to  fill  the  chariots  and  mule-carts, 
to  lade  the  sumpter-horses  or  the  camel-trains  of  a  vic- 
torious army.3 

Hence  it  was  that  the  distribution  of  the  precious 
metals  through  the  agency  of  prices,  which  was  described 
in  a  previous  chapter,  was  in  early  ages  effected  so  "tar- 
dily, if  at  all ;  and  the  wealth  or  poverty  of  a  kingdom, 
measured  by  its  possession  of  gold  and  silver,  was  de- 
termined, primarily,  by  the  fact  of  mines  being  found 
within  its  limits ;  secondarily,  by  the  military  prowess 
of  the  people  and  the  ambition  of  their  princes.  Anax- 
imenes  of  Lampsacus  relates  that  Philip  of  Macedon,  in 
the  early  part  of  his  reign,  before  the  mines  of  Thrace 

1  "It  was  deemed  either  a  royal  or  a  sacerdotal  privilege  to  pos- 
sess them." — [Jacob,  p.  72.] 

2  Mr.  Mill  remarks  that  "in  Hindostan,  gold,  silver  and  gems  are 
most  curiously  hoarded,  and  not  devoted  to  production." 

8  Indeed,  the  expectation  of  plunder  originally  formed  the  tie 
which  drew  the  free  Grecian  soldier  after  his  general.  It  was  not 
until  the  time  of  Pericles  that  the  regular  payment  of  soldiers  began 
at  Athens,  and  it  was  not  till  a  century  later  that  the  custom  had 
extended  itself  over  the  whole  of  Greece. 


PRODUCTION  OF  THE  PRECIOUS  METALS.     109 

were  opened  to  him,  was  wont,  when  he  retired  to  rest, 
to  place  under  his  pillow  the  small  and  only  cup  of  gold 
he  possessed.  That  Philip's  son  loaded  with  the  golden 
spoil  of  Persepolis  l  ten  thousand  mule-carts  and  five 
thousand  camels.  And  when  Macedon,  in  turn,  fell  be- 
fore the  conquering  rage  of  Rome,  the  treasures  carried 
away  by  Paulus  ^Emilius  sufficed  for  fifteen  years'  ex- 
penditure, without  the  necessity  of  a  resort  to  taxation. 
Speaking  broadly,  we  may  say  of  those  early  times,  that 
the  law  of  supply  and  demand  had  little  to  do  with  the 
production  of  the  precious  metals ;  and  that  when  pro- 
duced, they  were  not  distributed  through  the  agency  of 
price.  To  this  rule  there  were,  however,  exceptions. 
The  peasantry  not  infrequently  extracted  by  patient 
labor  small  amounts  of  gold  from  sources,  especially  the 
river  sands,  which  had  not  attracted  the  notice  of  their 
rulers.  No  degree  of  vigilance  could  guard  against  the 
unfaithfulness  of  slaves  and  overseers  in  pilfering  the 
products  of  the  mine.  And  when  the  vast  accumulations 
of  treasure  passed  from  the  conquered,  enormous  waste 
was  certain  to  result;  large  sums  were  seized  by  the 
soldiery  in  the  hour  of  sack  and  pillage,  while  from  time 
to  time  the  conqueror,  perhaps  the  usurper,  appeased 
his  mutinous  followers  by  donatives2  of  gold,  which  were 
speedily  dissipated  and  passed  into  circulation. 

Of  the  foregoing  statement  of  the  non-economical  nat- 
ure of  the  production  and  distribution  of  the  precious 
metals,  one  other  important  qualification  requires  to  be 
made.  The  Tyrians,  and  afterwards  the  Carthaginians, 
early  directed  their  great  commercial  talents  to  exchang- 

1  Stated  by  Diodorus  at  £27,600,000  British  sterling.     The  whole 
spoil  of  Persia  is  put  by  Arrian  at  forty  millions  British  sterling. 

2  According  to  Arrian,  Alexander  distributed,  in  Susa,  £4,600,000, 
British  money,  in  paying  the  debts  of  his  soldiery. 


HO  MONEY. 

ing  the  silver  of  Western  Europe,  and  especially  of  Spain, 
for  gold  with  Arabia  and  the  further  East,  perhaps  with 
India  itself.  Nor  could  the  statement  be  applied  with- 
out large  and  continually  increasing  exceptions,  after 
the  time  of  Alexander.  Already  had  the  extensive  coin- 
age of  Persia  shown  that  gold  was  losing  its  character  as 
treasure  and  gaining  that  of  money ;  while  the  Romans, 
not  so  much  through  their  commercial  instincts,  as 
through  that  courting  of  the  populace  and  the  soldiery 
which  marked  their  entire  history,  gave  a  merry  circula- 
tion to  the  spoil  of  Macedon  and  Asia. 

Yet,  while  these  exceptions  require  to  be  made,  the 
original  condition  of  things  subsisted  not  only  down  to 
the  period  of  the  Roman  Empire,  but  for  centuries  later, 
though  with  continually  diminishing  scope,  as  personal 
slavery,  in  its  absolute  form,  gave  way,  first,  before  the 
gradual  extension  of  Roman  citizenship,  and,  secondly, 
before  the  free  spirit  of  the  Teutonic  invaders  of  the 
Empire  who  came  to  occupy  the  countries,  Spain  and 
Thrace,  then  most  productive  of  the  precious  metals. 

As  I  conceive  it,  we  can  only  explain  the  vast  accumu- 
lations of  treasure  in  Egypt,  Persia  and  Judea,  by  ref- 
erence to  the  political  system  of  the  age.  The  produc- 
tion of  the  precious  metals  was,  in  the  main,  especially  at 
the  East,  non-economical,  without  reference,  that  is,  to 
the  cost  of  production.  It  was  only  because  kings  were 
as  completely  masters  of  the  labor  and  as  regardless  of 
the  lives  of  their  subjects  as  the  royal  builders  of  the 
Pyramids,  that  such  quantities  of  gold  and  silver  could 
be  extracted  from  the  soil  by  the  rude  implements  of  that 
age.  The  treasures  of  Susa  and  Persepolis  could  no. 
more  have  been  accumulated  under  the  operation  of 
commercial  demand,  than  the  Pyramids  have  been  built 
by  free  labor. 


PRODUCTION  OF  THE  PRECIOUS  METALS.     HI 

The  comparison  may  appear  extravagant :  yet  I  cannot 
but  think  that  it  will  serve  to  express  very  justly  the  non- 
economical  character  of  the  labor  which  was  expended 
for  this  object  during  the  early  ages,  at  least  down  to  the 
time  of  Alexander,  and  largely,  through  the  East,  for 
centuries  later. 

And  even  when  gold  and  silver  began  to  lose  somewhat 
their  character  of  royal  or  sacerdotal  treasure,  and  to  ac- 
quire that  of  money,  and  when,  thus,  their  production 
ceased  to  be  non-economical,  when,  that  is,  it  began  to 
have  reference  to  the  cost  of  production  and  became  sub- 
ject to  the  law  of  supply  and  demand,  it  still  remained,  in 
a  high  sense,  uneconomical,  by  which  I  mean  that  the  or- 
dinary assumptions  of  economical  reasoning  would  have 
to  be  importantly  modified  in  dealing  with  this  industry. 
The  ordinary  reasoning  of  the  economist  is  based  upon 
the  sufficiency  of  the  individual  initiative — each  man, 
that  is,  on  his  own  instance  seeking  his  own  interest — 
to  accomplish  the  largest  production  of  wealth,  and  its 
most  equable  distribution  among  the  various  producing 
classes ;  and  this,  not  for  the  moment  merely,  but 
through  any  period  of  time  that  may  be  taken  into  ac- 
count, however  considerable. 

It  is  upon  this  assumption  that  the  abstract  doctrine 
of  laissez  faire,  freedom  of  industry,  freedom  of  trade,  is 
built. 

But  while  this  assumption  clearly  has  to  be  modified 
somewhat  in  application  to  almost  any  form  of  produc- 
tion, in  respect  to  none  do  the  assumed  depart  from  the 
observed  facts  so  widely  as  in  the  mining  of  the  precious 
metals. 

While  greed,  the  haste  to  be  rich,  is  always  and  every- 
where the  enemy  of  true  self-interest,  it  nowhere  ob- 
tains such  a  mastery  over  the  senses  of  men,  as  where 


112  MONEY. 

gold  and  silver  are  in  sight,  the  immediate  objects  of 
exertion.  Never  do  men  so  sacrifice  the  future  to  the 
present,  never  so  disregard  the  larger  considerations  of 
prudence.  This  is  not  due  merely  to  the  fact  that  the 
production  of  the  precious  metals  has  generally  been 
pursued  at  a  distance  from  the  permanent  seats  of  pop- 
ulation, under  conditions  difficult  and'perhaps  dangerous, 
and  hence  by  men  more  than  usually  reckless  and  subject 
to  the  force  of  immediate  desires.  Largely  is  it  due  to 
the  mysterious  attraction  which  these  metals  have  ex- 
erted upon  the  powers  and  passions  of  men  of  all  races 
and  in  all  ages.  The  sacra  auri  fames  of  the  poet  is  but 
a  sober  expression  of  the  lust  which  has  ever  burned  in 
the  hearts  of  men  in  sight  of  gold. 

But  while  greed,  in  the  economical  sense  which  I  have 
given  the  word,  is  thus  often,  and  almost  as  a  rule,  op- 
posed to  true  self-interest ;  and  while  greed  is  so  easily 
exalted  to  frenzy  in  the  prospect  of  the  precious  metals, 
there  is  also  no  industry  in  which  so  wide  a  difference 
is  made  in  the  large,  the  ultimate,  result,  according  as 
men  work  under  the  blind  impulse  of  immediate  ac- 
quisition, or  under  the  direction  of  an  intelligent  sense 
of  self-interest,  extending  its  view  beyond  the  present 
to  the  distant  future. 

Time  will  not  serve  us  to  go  deeply  into  the  techni- 
calities of  the  production  of  gold  and  silver ;  but  one 
or  two  simple  illustrations  may  make  this  proposition 
seem  not  unreasonable. 

Here  is,  let  us  suppose,  a.  superficial  deposit  of  gold 
dust  in  the  bed  of  an  old  river.  Throughout  certain 
portions  of  the  former  channel,  where  the  forces  of  the 
current  especially  directed  it,  the  gold  lies  richly  min- 
gled with  the  sand.  Over  other  portions  of  the  bed  of 
the  stream  it  is  found  more  and  more  sparsely,  yielding 


PRODUCTION  OF  THE  PRECIOUS  METALS.     113 

a  less  and  less  return  to  labor.  Is  it  not  evident  that  a 
hundred  men  under  intelligent  direction,  animated  by 
the  purpose  to  secure  for  themselves,  as  a  body,  the 
largest  amount  of  the  precious  metal  from  this  deposit, 
would  proceed  to  work  very  differently  from  a  hundred 
miners  who  should  rush  into  the  bed  of  the  old  stream, 
with  the  wild  cry  of  "  Gold ! "  each  for  himself  strug- 
gling with  furious  haste  to  get  the  most  he  could 
before  night,  careless  how  much  he  wasted  in  his 
search,  half  washing  the  sands,  and  letting  perhaps 
more  than  he  obtained  be  carried  down,  to  be  lodged 
here  and  there  in  places  which  would  escape  the  eye, 
or  in  quantities  which  would  not  pay  the  working? 
Does  it  not  appear  that  thus  a  "  placer  "  which  would 
yield  a  handsome  return  to  labor  for  a  month,  might 
be  exhausted  for  economical  purposes  in  a  week,  so 
that  thereafter  labor  would  receive  a  fortuitous,  and 
at  best,  an  inadequate  return  ? 

But  let  us  transfer  our  view  to  the  production  of  the 
precious  metals,  no  longer  from  the  bed  of  streams,  but 
from  the  deep  recesses  of  the  earth,  where  shafts  have 
to  be  driven  hundreds  of  fathoms  through  solid  rock, 
where  the  roof  under  which  the  miners  work  by  the  light 
of  their  torches  has  to  be  supported  by  Beams  of  timber 
or  by  pillars  of  rock  left  for  that  purpose  in  the  progress 
of  the  excavation;  where  life  has  to  be  guarded  most 
carefully  and  expensively  against  mephitic  or  explosive 
gases ;  and  where  the  mines  have  to  be  kept  free  of  water 
by  constant  pumping  or  systematic  drainage.  Under 
such  circumstances  it  is  evident  that,  unless  the  present 
is  to  be  strictly  subordinated  to  the  future ;  unless  the 
greed  for  immediate  acquisition  is  to  be  held  strongly  in 
hand  by  prudence,  and  all  work  be  done  in  the  large 
view  of  true  self-interest,  a  great  difference  will  be 


114  MONEY. 

wrought,  in  the  result,  upon  the  production  of  the  mine, 
looked  upon  as  a  resource  for  supplying  the  world  of 
commerce  from  age  to  age  with  the  metal  which  has 
been  adopted,  not  only  as  the  medium  of  current  ex- 
changes, but  as  the  standard  by  which  deferred  pay- 
ments are  to  be  effected.  If  only  indolence  furnishes  in 
insufficient  quantity,  or  of  inadequate  material,  the  tim- 
bers which  are  to  shore  up  the  sides  and  the  roof  of  the 
galleries,  or  if,  in  the  haste  to  push  the  work  that  yields 
so  richly  its  golden  gains,  the  accumulation  of  fire-damp 
is  unnoted  or  neglected,  one  awful  hour  may  suffice  to 
close  forever  that  source  of  wealth,  which,  with  proper 
care,  with  a  due  subordination  of  the  present  to  the 
future,  with  a  just  view  of  self-interest,  would  have  re- 
mained open  to  give  employment,  generation  after  gen- 
eration, to  a  large  population. 

So  much  for  the  effects  of  greed  upon  the  work ;  how 
of  the  worker? 

The  statistics  of  mining  populations  show  a  horrible 
waste  of  laboring  power  and  of  life  arising  out  of  reck- 
lessness in  exposure  and  of  parsimony  in  expenditure, 
even  where  laborers  are  free  to  make  their  terms  with 
their  employers.  If  so,  how  rapid  must  have  been  the 
consumption  'of  life  and  laboring  force,  when  mines 
were  generally  worked  by  convicts  and  slaves,  having 
no  power  to  contract  or  to  stipulate  terms,  but  driven 
to  work  by  gangs,  in  chains !  Do  we  not  see  here  the 
possibility,  almost  the  certainty,  of  indefinite  waste  and 
loss  in  production,  where  the  passionate  greed  of 
wealth,  the  consuming  lust  of  gold,  loses  even  the  phys- 
ical instincts  of  self-preservation  to  restrain  the  exer- 
tions of  the  bodily  powers  and  the  exposure  of  life  and 
limb  in  the  perilous  work  of  mining  ? 

But  we  have  yet  another  step  to  take  in  the  same  di- 


PRODUCTION  OF  THE  PRECIOUS  METALS.     115 

rection.  Let  us  suppose  the  mine  to  be  worked  and  the 
body  of  slaves  to  be  driven,  not  by  the  owner  and 
master,  who  could  never  entirely  forget  the  claims  of  the 
future,  never  be  wholly  inconsiderate  of  the  needs  of  his 
own  property,  but  by  the  farmer,  cut  off,  by  the  very 
terms  of  his  brief  lease,  from  all  interest  in  the  distant 
future,  intent  only  on  achieving  the  maximum  of  imme- 
diate production  with  the  minimum  of  outlay,  utterly  in- 
different as  to  the  condition  in  which  he  sha'll  leave  the 
mine  at  the  expiry  of  his  legal  interest  therein,  and  as  to 
the  labor  supply  of  the  next  lessee. 

Here,  at  last,  we  reach  the  sufficient  explanation  of  the 
havoc  which  has  been  wrought  upon  the  mining  resources 
of  the  world,1  a  havoc  which  is  eloquently  witnessed, 
throughout  Europe,  Asia,  and  Africa,  by  abandoned 
mines  never  truly  worked  out,  and  by  the  utter  sterility 
of  regions  once  the  sources  of  rich  supplies  of  metallic 
wealth. 

Nor  can  we  afford  to  disregard  the  effects  of  war  and 
of  civil  commotion  upon  the  production  of  the  precious 
metals.  The  fire  runs  over  the  fields  and  burns  and 
Jblackens  all  around ;  but,  another  spring,  nature  blooms 

1  The  family  of  the  Fuggars  were  the  best  miners  of  Europe  at  the 
close  of  the  sixteenth  and  the  beginning  of  the  seventeenth  century. 
Their  success  was  long  witnessed  by  scores  of  noble  families  in  Augs- 
burg, Madrid,  Antwerp,  Genoa,  Milan  and  Ghent.  Yet  Mr.  Jacob 
says  of  their  mines  at  Guadalcanal,  in  Spain :  "  They  viewed  their 
concessions  as  a  temporary  property  from  which  they  were  to  ex- 
tract what  wealth  they  could,  with  as  much  expedition  as  possible, 
and  with  the  least  expense  to  themselves.  With  this  view  they 
formed  many  galleries  where  the  minerals  appeared  the  most  rich, 
and  speedily  forsook  them  to  open  others.  There  are  now  visible  as 
many  as  sixteen  of  these  openings,  the  roofs  of  which  were  sup- 
ported by  wooden  posts,  but  so  slightly  that  they  have  all  rotted, 
and  thus  the  passages  became  closed  up." — [P.  150.] 


116  MONEY. 

with  even  a  greener  foliage  and  a  larger  fruitage,  for 
what  wasted  also  fertilized.  The  fire  that  sweeps  over 
the  mouth  of  the  mine  leaves  blackness  and  the  horror 
of  a  deep  silence  only. 

Such,  in  a  figure,  is  the  difference  between  the  effects 
of  war  or  civil  convulsion  upon  mining,  as  contrasted 
with  agricultural  industry.  No  cause  has  been  more 
potent  for  closing  mines  not  yet  exhausted.  Even  relig- 
ious persecution l  has  set  its  seal  over  the  mouth  of  many 
a  mine,  a  seal  never  to  be*  broken.  The  mining  popula- 
tion once  scattered,  the  mouth  of  the  mine  fallen  in,  the 
roof  here  crushing  the  neglected  timbers,  the  subterra- 
nean springs  there  filling  up  the  vacant  galleries,  this 
once  fertile  source  of  supply  is  added  to  the  almost  count- 
less number  of  those  which  have  ceased  to  contribute  to 
the  world's  stock  of  the  precious  metals. 

It  may  be  thought  that  the  moral  and  material  con- 
ditions of  mining  have  been  dwelt  upon  at  undue  length ; 
but  I  conceive  that  we  cannot  understand  the  wayward 
course  of  the  production  of  the  precious  metals,  since  the 
establishment  of  the  Roman  Empire,  without  reference 
to  these  considerations,  any  more  than  we  can  upon  the 
principle  of  supply  and  demand,  alone,  account  for  the 
vast  accumulations  of  treasure,  prior  to  that  period,  by 
the  unskillful  labor  and  rude  implements  of  the  early 


1  The  Altenburg  mines  were  abandoned  by  reason  of  Protestantism 
spreading  among  the  miners.  "Fallen  buildings,  heaps  of  scoriae, 
open  shafts  and  choked  galleries,"  says  Mr.  Jacob,  "still  attest  the 
former  prosperity  of  the  mining  operations  of  this  district." — [P.  136.] 
Religious  differences  caused  the  abandonment  of  many  of  the  Salzburg 
mines. 


CHAPTEE  VI. 

THE  PRODUCTION  OF  THE  PRECIOUS  METALS. — FROM  AUGUSTUS 
TO  COLUMBUS. 

IN  tracing  the  history  of  the  production  of  the  pre- 
cious metals,  as  bearing  on  the  question  of  the  Money- 
supply,  we  need  to  have  in  consideration  three  elements 
besides  the  yield  of  the  mines. 

The  other  elements  of  the  problem  are : 

1.  The  consumption  of  gold  and  silver  as  ornaments, 
and  in  the  arts,  industrial  and  decorative. 

2.  The  wear  of  the  metals  in  use  as  coin. 

3.  The  drain  of  silver  to  the  East. 

The  consumption  of  the  precious  metals  as  orna- 
ments and  in  the  arts  has  long  been  of  vast  though  in- 
determinate extent.  Nor  has  the  dedication  of  gold  or 
silver  to  that  use  always  prevented  its  return  to  more 
practical  service  as  money.  In  some  ages  and  countries 
these  uses  have  been  in  a  high  degree  interchangeable.1 

1  The  telegraphic  correspondence  of  the  London  "  Times  "  from  Cal- 
cutta, June  17,  1877,  contains  the  following :  "The  Bombay  papers 
have  been  drawing  attention  to  the  extraordinary  increase  in  the 
amount  of  jewelry  and  personal  ornaments  tendered  for  sale  at  the 
Presidency  Mint,  as  affording  a  sure  test  of  the  severity  with  which 
the  famine  is  pressing  on  the  people.  The  published  figures  are  cer- 
tainly startling.  The  value  of  silver  ornaments  tendered  from  Jan- 
uary to  October,  1876,  averaged  from  £300  to  £600,  monthly.  It  has 

10* 


118  MONEY. 

As  we  shall  see,1  ring-money  preceded  coined  money ; 
and  the  ring  and  the  chain  have  not  infrequently  served 
very  well  in  later  times  as  substitutes  for  coin.  The 
reader  recalls  how  the  Scottish  archer  of  Louis  XI  bit 
off  some  links  of  his  gold  chain,  to  purchase  masses  for 
the  .souls  of  his  murdered  kindred.  On  the  death  of 
Sir  Thomas  GreshanT,  the  founder  of  the  Eoyal  Ex- 
change of  London,  no  small  part  of  his  wealth  was 
found  to  consist  of  rings  and  chains,  almost  as  truly 
ready-money,  in  those  days,  as  easily  appraised,  as 
easily  exchanged,  as  the  coin  of  the  realm. 

There  are  other  uses  to  which  the  precious  metals  are 
put  which  would  seem  to  be  incompatible  with  their 
further  service  as  money ;  yet  time  and  accident  have 
served  to  bring  about  the  restoration  to  the  purposes  of 
commerce  of  vast  masses  of  gold  and  silver  dedicated, 
not  merely  to  royal  uses,  but  to  the  decoration  of  tem- 
ples and  the  worship  of  deity,  whether  in  heathen  or 
Christian  lands. 

Not  only  was  conquest  generally  deemed  to  carry 
with  it  the  right  to  strip  the  temples  of  their  precious 
utensils,  and  even  of  the  images  and  the  masses  of 
metal  which  gave  refulgence  to  altar  and  roof  and  dome  ;2 
but  the  necessities  of  the  monarch  or  the  state  might, 
even  in  Christian  countries,  justify  a  demand  upon  the 
church  for  its  vessels  of  silver  and  of  gold.  When 

since  then  increased  enormously  and  was,  in  May,  over  £80,000. 
It  is  a  well-known  fact  that  the  purchase  of  ornaments  is  the  Indian 
peasant's  usual  way  of  investing  his  savings,  and  that  he  clings  to 
these  baubles  as  long  as  possible." 

1  See  p.  165. 

2  The  Capitol,  denominated  aurea  by  Virgil  and  fulgens  by  Horace, 
was  gilded,  or  rather  plated,  with  12,000  talents  of  gold,  and  the 
same  mode  of  decoration  soon  extended  to  temples  and  palaces. 


PR  OD  UCTION  OF  THE  PREC1 0  US  METALS.     119 

Richard  the  Lion  Heart  was  ransomed  from  captivity 
in  1194,  "  even  the  gold  and  silver  cups  and  other  ves- 
sels used  in  the  Holy  Eucharist,"  says  Arnold,  Abbot  of 
Lubec,  "  were  melted  for  the  purpose." 

The  consumption  of  these  metals  in  the  arts  of  inte- 
rior decoration,  and  in  the  form  of  household  utensils, 
has  varied  greatly,  not  merely  in  different  ages,  and  not 
merely  in  consequence  of  the  scarcity  or  profusion  with 
which  the  precious  metals  were  supplied  by  the  mines, 
but  according  to  the  prevailing  tastes  of  each  people  at 
the  time.  The  Romans,  even  when,  by  the  victories  of 
Paulus  ^Emilius  and  of  Caesar,  they  became  masters  of 
a  large  part  of  the  accumulated  treasures  of  the  world, 
employed  the  precious  metals  but  little  in  their  homes, 
whether  for  gilding l  or  for  plate. 

But  in  public  places  the  Romans,  ever  intent  on  im- 
pressing the  populace,  now  by  magnificence,  now  by 
generosity,  were  profuse  in  the  employment  of  gold  and 
silver.2  The  equipage  of  the  senator,  the  lectica,  or 
sedan-chair,  in  which  he  was  borne,  the  carriage  in 
which  he  rode,  and  even  the  bits  and  collars  of  his 
horses  were,  wholly  or  in  considerable  part,  of  gold. 

Of  the  gold  and  silver  applied  thus  to  purposes  of  os- 
tentation, not  a  little  would,  in  times  of  disaster  to  the 

1  Gilding  on  metals  or  china,  which  involves  great  loss  of  the 
metal,  was  unknown  to  the  ancients. 

2  "  Though  the  Greeks  and  Romans  generally  were  without  some 
of  our  commonest  implements  of  gold  and  silver,  such,  for  instance, 
as  watches  and  forks,  it  is  probable  that  they  indulged  even  more 
than  we  do  in  personal  decoration  with  rings,  seals  and  trinkets  of 
a  thousand  descriptions.     Their  armor  and  even  their  peaceful  ha- 
biliments were  ornamented  with  the  precious  metals,  and  altogether 
the  traffic  in  this  particular  article,  which  came  chiefly  from  the 
Spanish  mines,  furnished  as  important  an  element  in  their  commerce 
as  in  our  own." — [Meri vale's  History  of  the  Romans,  iv,  317.] 


120  MONEY. 

individual  or  the  state,  find  its  way  back  to  the  chan- 
nels of  commerce.  This  was,  however,  a  resource  of 
less  scope  than  it  would  be  found  to  be  now.  "  It  has 
been  supposed,"  says  Mr.  Jacob,  "  that  in  England,  at 
the  present  day,  the  quantity  of  gold  and  silver  in  act- 
ual existence,  including  utensils,  ornaments,  jewelry, 
trinkets  and  watches,  is  three  or  four  times  as  great  as 
the  value  of  those  metals  which  exist  in  the  form  of 
money.  In  case  circumstances  should  arise  to  induce 
the  conversion  of  plate  into  money,  these  would  be  a  re- 
source which  could  furnish  a  supply  ;  but  in  the  Koman 
Empire  the  plate  and  jewels  of  two  thousand  wealthy 
families  would  have  been  but  a  feeble  aid  to  the  money 
circulating  in  that  powerful  Empire,  which  compre- 
hended within  its  limits  the  most  populous  and  exten- 
sive parts  of  the  known  world." — [P.  116.]  During  the 
Middle  Ages,  the  quantity  of  the  precious  metals  em- 
ployed for  domestic  utensils,  for  religious  uses  or  in 
personal  decoration,  is  believed  by  this  writer  to  have 
been  very  small. — [P.  165.]  Gilding  and  plating  were 
now'the  forms  chiefly  taken  by  this  species  of  luxury. 

The  use  of  gold  and  silver  in  the  arts  has  in  some 
countries  been  caused,  not  so  much  by  the  abundance 
of  the  precious,  as  by  the  scarcity  of  the  useful,  metals. 
The  Portuguese  discoverers  found  the  Brazilians  using 
fish-hooks  of  gold;  while  in  the  Scandinavian  tumuli 
opened  in  Denmark  were  swords,  daggers  and  knives, 
the  blades  of  which  were  of  gold  while  an  edge  of  iron 
was  introduced  for  the  purpose  of  cutting.  Prescott,  in 
his  "  Conquest  of  Peru,"  relates  that  silver  was  mingled 
with  copper  in  the  manufacture  of  armor  by  the  Le- 
vantine artisans  employed  by  Almagro  at  Cuzco  [ii, 
212] ;  and  that  in  the  march  on  Xauxa,  Pizarro  shod 
the  horses  of  his  command  throughout  with  silver. — [i, 
452.] 


PRODUCTION  OF  TEE  PRECIOUS  METALS.     121 

The  loss  of  gold  and  silver  by  abrasion  of  coin  in 
use,  is  another  element  of  the  question  of  the  Money- 
supply.  The  amount  of  this  loss  is  a  function  of  two 
variables :  exposure  to  abrasion,  as  determined  by  the 
shape  of  the  coin  and  the  rapidity  of  circulation,  and 
the  power  of  resistance,  as  determined  by  the  character 
of  the  alloy  in  the  coin. 

Thus,  when  the  stock  of  the  precious  metals  was  at 
its  height  in  the  reign  of  Augustus,  by  far  the  greater 
portion  was  protected  from  abrasion  by  being  held  in 
mass,  as  treasure.  Within  the  next  hundred  years, 
however,  the  vast  bodies  which  had  been  stored  in  the 
treasure  houses  were  thrown  into  active  circulation 
among  the  people,  and  a  high  rate  of  consumption  im- 
mediately resulted  from  the  inferior  character  of  the 
alloys  used  in  the  mints  of  the  empire. 

It  does  not  appear  that  the  ancients  employed  silver 
to  alloy  gold.  Their  alloys  consisted  wholly  of  tin, 
copper  or  iron.  Now,  the  English  mint  experiments, 
most  carefully  conducted  between  1798  and  1802,  show 
that  the  loss  on  gold  under  the  same  friction  but  with 
different  alloys,  was  as  follows  : 

On  British  standard  gold,  if  alloyed  with  silver  alone, 
or  with  equal  parts  of  silver  and  copper,  on  854  grains, 
4.20  grains ;  if  alloyed  with  tin  and  copper,  on  846 
grains,  15.30  grains ;  if  alloyed  with  iron  and  copper, 
on  825  grains,  21.60  grains. 

On  the  other  hand,  when,  between  800  and  1492,  the 
quantity  of  the  precious  metals  in  existence  had  sunk 
to  a  minimum,  and  prices  had  reached  the  point  that 
copper,  tin  and  iron  contained  a  value  for  their  bulk 
adequate  to  effect  the  few  and  tardy  exchanges  of  that 
dark  age,  the  loss  from  abrasion  on  the  surviving  volume 
of  gold  and  silver  coins  became  almost  indefinitely  less, 
11 


122  MONEY. 

as  they  were  withdrawn  from  the  uses  of  ordinary  com- 
merce and  were  found  only  in  the  caskets  of  princes  or 
in  the  shops  of  goldsmiths. 

It  has  been  said  that  the  drain  of  silver  to  the  East 
is  to  be  regarded  as  an  element  in  the  question  of  the 
Money-supply. 

It  will  naturally  be  asked  why,  under  the  principle  of 
Bicardo's  law  of  distribution,  the  East  should  thus  be 
separated,  in  our  contemplation,  from  the  West;  wiiy 
the  silver  sent  to  Asia  should  be  treated  by  the  writer 
on  Money  as  lost  to  commerce? 

It  has  already  been  intimated  that  the  result  of  re- 
cent thinking  and  investigation  has  been  to  qualify 
somewhat  Ricardo's  statement  of  the  diffusion  of  the 
precious  metals  by  the  operations  of  commerce ;  that  it 
has  come  to  be  recognized  that  the  distribution  is  not 
effected  without  encountering  retarding  causes,  which 
allow  important  effects  to  be  experienced  through  the 
occurrence  of  distinct  intervals  in  the  passage  of  a  new 
supply  from  one  country  to  another,  and  from  one  class 
of  commodities  to  another.  But  even  those  economists 
who  have  most  rigidly  insisted  on  applying  the  princi- 
ple of  diffusion,  without  important  qualification,  to  all 
the  nations  of  Europe  and  America,  have  been  wont  to 
regard  the  East  as,  until  recently,  at  least,  almost  a 
total  exception,  looking  upon  China  and  the  other  coun- 
tries of  Asia  as  constituting,  as  it  were,  a  vast  plain  of 
sand,  which  drinks  up  the  streams  of  the  precious  met- 
als without  giving  them  back  to  commerce. 

The  exchange  of  the  silver  of  Europe,  and  particular- 
ly of  Spain,  for  the  gold  and  spices  of  the  East,  had 
proceeded  from  the  earliest  times.  The  proportionate 
value  of  silver  to  gold  was  greater  in  Asia  than  in  Eu- 
rope. "When  gold,"  says  Mr.  Jacob,  "was  worth  in 


PRODUCTION  OF  THE  PRECIOUS  METALS.     123 

Asia  and  Africa  no  more  than  eight  or  nine  times  its 
weight  in  silver,  it  was  worth  in  Europe,  and  especially 
in  Western  Europe,  from  ten  to  thirteen  times  as 
much." — [P.  190.]  Indeed,  there  -is  reason  to  believe 
that  the  values  of  silver  and  of  gold  in  Asia  at  earlier 
dates  approached  even  nearer  to  equality.  A  fragment 
of  Agatharchidas  is  preserved  which  assigns  to  silver 
in  Arabia  a  value  greater  than  that  of  gold,  and  in  our 
own  day,  the  opening  of  trade  with  Japan  found  gold 
valued  in  the  coinage  of  that  empire  only  as  one  to  four 
of  silver. 

It  was  not,  however,  until  the  sixteenth  century  that 
the  money  of  Europe  and  America  began  to  overflow,  in 
great  streams,  into  what  Prof.  Cairnes  calls  "the  more 
absorbent  and  impassive  systems  of  Asia."  During 
that  and  the  following  century,  Mr.  Jacob  estimates 
that  one-tenth  of  the  treasure  supplied  to  Europe  by 
the  mines  of  America  was  transported  to  India.  In 
the  eighteenth  century  the  export  rapidly  increased, 
with  the  European  consumption  of  teas,  silk,  and  other 
oriental  productions.  For  the  period  1700  to  1829,  the 
conclusion  of  his  "Inquiry,"  Mr.  Jacob  estimates  the 
share  of  the  product  of  the  mines  transferred  to  Asia 
to  be  not  less  than  two-fifths. 


Having  dwelt  with  some  fullness  upon  the  conditions 
of  the  production  of  the  precious  metals,  and  having 
stated  and  briefly  illustrated  the  other  elements  of  the 
case,  let  us  consider  the  main  facts  respecting  the 
Money-supply  of  the  "Western  world  since  the  estab- 
lishment of  the  Roman  Empire. 

By  successive  conquests  Eome  had  not  alone  acquired 
possession  of  nearly  all  the  mines  throughout  the  world 


124  MONEY. 

then  yielding  the  precious  metals.  A  large  proportion 
of  the  whole  mass  of  gold  and  silver  which  had  been 
produced  during  preceding  centuries  was  drawn  to 
Italy.  This  result  was  only  rendered  possible  by  the 
habitual  accumulation  of  the  precious  metals  through- 
out the  East  in  great  stores  of  royal  treasure,  as  has 
been  described.  Had  the  produce  of  the  mines  been 
diffused  by  the  agency  of  commerce,  as  in  subsequent 
ages,  among  the  body  of  the  people,  even  the  force  of 
imperial  taxation  at  its  utmost  pressure  must  have 
failed  to  draw  together  so  large  a  portion  of  the  gold 
and  silver  of  the  world. 

Through  the  non-economical  character  of  the  produc- 
tion of  the  precious  metals,  as  discussed  in  a  previous 
chapter,  the  volume  of  these  metals  in  existence  had 
been  raised  to  dimensions  far  exceeding  what  would 
have  been  possible  under  the  operation  of  the  law  of 
supply  and  demand,  with  the  rude  chemical  and  me- 
chanical appliances  then  in  use.  The  mass  was  indeed 
enormous.  Mr.  Jacob  estimates  the  stock  of  money  in 
the  Empire  on  the  accession  of  Augustus,  at  X358,- 
000,000  sterling.1 

But  while  Home,  by  her  military  energy,  seized  the 
accumulated  treasures  of  Carthage,  Spain,  Gaul,  Greece, 
Asia,  and  Egypt,  throwing  into  circulation,  as  money, 
among  her  people  what  had  been  hoarded  as  royal 

1  Throughout  this  and  the  following  chapter  I  shall  give  the  figures 
of  production  and  consumption  as  Mr.  Jacob  estimates  them,  not 
because  I  have  great  confidence  in  estimates  of  this  sort,  prior  to  the 
present  century,  but  because  (1)  Mr.  Jacob's  estimates  are  referred 
to  very  extensively  by  all  English,  French,  and  German  writers,  and 
the  reader  may  therefore  be  interested  to  see  them  in  detail ;  (2)  Mr. 
Jacob's  mode  of  tracing  down  the  course  of  production  and  consump- 
tion affords  a  capital  example  of  that  sort  of  investigation. 


PRODUCTION  OF  THE  PRECIOUS  METALS.     125 

treasure  or  devoted,  in  vast  masses,  to  sacerdotal  uses," 
thus  raising  the  prices  of  all  commodities  throughout 
the  Empire,  but  especially  in  Italy  and  the  countries 
nearest  the  capital,  Roman  dominion,  almost  by  the 
necessity  of  the  case,  proved  fatal  to  the  continued  sup- 
ply of  the  precious  metals.  The  Romans  were  unskilled 
in  mining.  Italy  was,  perhaps,  of  all  the  countries  em- 
braced within  the  Empire,  that  which  had  least  devel- 
oped its  own  mineral  resources.  This  fact  undoubted- 
ly concurred  with  the  Roman  instinct  for  the  simplifi- 
cation of  administration,  in  inducing  the  general  adop- 
tion of  the  system  of  "farming"  the  mines,  with  the  re- 
sult, both  upon  the  mines  as  properties  and  upon  the 
laboring  populations  pertaining  to  them,  which  has  been 
described  as  incident  to  that  mode  of  working. 

"The  farmers,"  says  Mr.  Jacob,  "took  out  only  the 
best  ores,  and  neglected  those  of  inferior  quality;  leav- 
ing them  in  the  pits,  where  they  soon  became  buried  in 
the  rubbish  with  which  they  were  surrounded.  Their 
object  being  to  enrich  themselves  during  the  term  for 
which  they  held  the  mines,  they  naturally  neglected 
the  interests  of  future  workers  and  suffered  them  to  go 
to  ruin.  Whilst  exhausting  the  mines  of  the  richest 
ores,  they  only  cut  the  passages  and  propped  the  roofs 
in  so  slight  a  manner  that,  if  they  lasted  during  the 
current  leases,  they  would  all  require  to  be  reconstruct- 
ed in  a  short  period  after ;  which,  when  the  best  ores 
had  been  extracted,  would  be  at  an  expense  that  could 
not  be  replaced  by  any  product  of  the  inferior  ores 
which  had  been  left  behind.  The  various  contrivances 
for  keeping  out  the  water  from  the  mines,  and  the  ma- 
chines and  the  implements  for  extracting  what  could 
not  be  kept  out,  were  all  contrived  to  answer  temporary 
purposes  commensurate  with  the  length  of  the  period 
for  which  they  were  let  to  farm." — [P.  79.] 


126  MONEY. 

But  the  Eoman  dominion  served  in  still  another  way 
to  diminish  the  productiveness  of  the  mines.  Prior  to 
conquest,  the  mines  of  Spain,  Thrace,  Asia,  and  other 
gold  or  silver  bearing  countries,  had  been  worked,  for 
the  benefit  of  the  local  sovereigns,  by  convicts,  by  con- 
scripts, or  by  serfs.  The  crop  of  convicts  in  those 
brutal  days  was  never  likely  to  fail ;  and  as  their  labor 
was  essentially  non-economical,  i.  e.,  as  they  had,  in 
any  case,  to  be  confined  at  the  public  charge,  for  the 
protection  of  society  or  their  own  punishment,  the 
produce  of  their  labor  bore  no  necessary  relation  to  the 
cost  of  their  maintenance.  It  was  otherwise  with  the  • 
conscripted  and  the  adscripted  laborers  in  the  mines, 
those  drawn  by  lot  and  those  born  to  the  service.  If 
the  supply  of  these  was  to  be  kept  up  from  generation 
to  generation,  the  produce  of  their  labor  must  be 
charged  with  the  cost  of  maintaining  them,  together 
with  their  families.  A  fourth  class  of  laborers  in  mines 
consisted  of  slaves,  the  captives  of  almost  incessant 
wars.  The  employment  of  these,  again,  was  chiefly 
non-economical,  being  without  reference  either  to  re- 
paying the  cost  of  bringing  the  present  body  of  labor- 
ers to  maturity,  or  to  providing  for  the  future.  It  was 
by  this  last  means  that  the  labor-supply  of  the  mines 
of  the  earliest  period  was  largely  recruited ;  and  the 
activity  of  the  production  of  the  precious  metals  in  any 
country  was  made  to  depend  greatly  upon  the  good  or 
ill  fortune  of  the  people  in  war.  The  gradual  exten- 
sion of  the  Koman  dominion  brought  about  a  state  of 
almost  universal  peace,  merging  a  thousand  warring 
tribes  in  the  vast  empire  which  was  bounded  by  the 
ocean,  the  Rhine,  the  Danube,  the  Euphrates,  and  the 
Desert  of  Africa ;  a  state  of  peace  interrupted  only  by 
civil  commotion,  the  results  of  which,  however  bloody, 


PRODUCTION  OF  THE  PRECIOUS  METALS.     127 

could  not  include  the  reduction  of  the  soldiers  of  either 
faction  to  the  condition  of  slavery.1  Thus  war,  as  a 
source  of  labor-supply  for  the  mines,  practically  ceased. 
Slaves  were  still,  it  is  true,  brought  into  the  Empire  as 
the  result  of  piracy,  or  of  trade  with  barbarous  regions 
beyond  the  reach  of  Roman  power;  but  these  were 
hardly  numerous  enough  to  meet  the  demands  for  per- 
sonal service,  under  the  growing  luxuriousness  of  the 
age ;  and  purchased  slaves  soon  became  too  costly  to  be 
employed  in  the  difficult  and  dangerous  work  of  mining.2 
There  remained  to  the  Eoman  authorities,  as  a  re- 
source for  working  the  mines  of  the  precious  metals 
which  had  been  acquired  by  conquest,  the  labor  of 
convicts  and  of  serfs.3  As  the  difficulty  of  securing 
laborers  from  other  sources  increased,  labor  in  the 
mines  was  more  and  more  made  the  penalty  of  crime, 
until  this  mode  of  punishment  became  almost  universal ; 
while  successive  decrees  increased  the  traditional  ob- 
ligations of  the  peasantry  in  the  neighborhood  of 
mines.4  The  severity  of  these  exactions  coupled  with 

1  "  The  legions  of  Pompey,  when  beaten  by  Julius  Caesar,  did  not 
become  slaves,  neither  were  those  who  fought  under  Brutus  and 
Cassius  at  Philippi,  nor  those  who  contended  under  Marc  Antony 
against  Octavius,  when  dispersed  as  an  army,  sold  for  slaves  to  their 
fellow-citizens." — [Jacob,  p.  101.] 

2  "  Though  numerous  slaves  were  employed  in  all  the  offices  of 
domestic  life,  in  trades,  in  fabrics,  and  in  agriculture,     .     .     .     there 
are  no  instances,  in  the  time  of  the  emperors  or  in  the  ages  that  fol- 
lowed, of  their  being  employed  in  the  degrading  and  unproductive 
labor  of  the  mines." — [Jacob,  p.  103.] 

3  Glebae  et  metallis  adscript!. 

4  "At  first,  one  half  of  the  inhabitants,  only,  were  compelled  to 
labor  in  the  operations  connected  with  the  mines ;  but  as  the  num- 
bers decreased  a  law  was  made  by  which  all  the  children  of  these  he- 
reditary miners  were  required  to  devote  their  labor  to  the  mines." — 
[Jacob,  p.  98.] 


128  MONEY. 

the  cruelty  of?the  farmers  and  overseers  made  great 
inroads  upon  these  unfortunate  populations.  Soon  a 
new  danger  presented  itself.  The  barbarians  appeared 
on  the  borders  of  the  Empire,  offering  a  refuge  to  those 
who  had  the  courage,  born  of  despair,  to  attempt  their 
escape  from  the  power  of  Borne.  Next,  the  barbarians 
thrust  themselves  into  the  Empire,  and  the  lands  ear- 
liest invaded  were  those  on  the  produce  of  whose  mines 
the  world  was  most  dependent  for  its  supply  of  the 
precious  metals.  The  serfs  became  the  personal  slaves 
of  the  conquerors,  or  swelled  the  ranks  of  their  armies.1 

Such  were  the  causes  which  in  swift  succession  re- 
duced the  labor-supply  of  the  mines  of  the  Empire. 
Meanwhile,  so  wasteful  had  been  the  operations  of  the 
farmers  of  the  mines,  that  the  earlier  emperors  were 
driven  to  assume  the  charge  of  the  mines,  which  were 
again  worked  by  public  officers  on  government  account. 

It  will  not  be  necessary  to  speak  of  the  various  meas- 
ures resorted  to  by  successive  emperors  to  stimulate 
the  failing  production  of  the  precious  metals ;  of  grants 
to  individuals  to  work  mines  on  shares ;  of  edicts  issued 
almost  in  despair,  making  mining  as  "  free  "  as  many 
nowadays  wish  banking  to  be  ;  of  efforts  to  systematize 
the  administration  of  the  mines  and  introduce  scientific 
knowledge  and  technical  skill  into  the  conduct  of  min- 
ing operations.  The  production  of  the  precious  metals 
had  received  a  shock  from  which  it  was  not  to  recover 
for  more  than  one  thousand  years. 

"We  may  safely  conclude,"  says  Mr.  Jacob,  "that 
after  the  third  or  fourth  century  the  labor  of  extracting 
the  precious  metals  had  gradually  diminished  within 

1  Dacian  miners  re-info  reed  the  Goths  who  defeated  and  slew  the 
Emperor  Yalens. 


PR  OD  UCTION  OF  THE  PRECIO  US  METALS.     1 29 

the  limits  of  the  Roman  Empire;  and  that,  from  the 
fifth  century,  after  the  more  afflicting  irruptions  of  the 
barbarians  into  the  weak  and  tottering  Western  Em- 
pire, it  had  altogether  ceased." — [P.  101.]  "  In  the  pe- 
riod from  about  480  to  670  or  680,  the  greatest  diligence 
las  been  able  to  discover  no  trace,  in  any  author,  of  the 
operations  of  mining  having  been  carried  on." — [P.  131.] 

It  was  to  the  decrease  thus  produced  in  the  supply  of 
the  precious  metals,  beginning  "at  the  very  time  when 
the  victories  of  the  legions  and  the  wisdom  of  the  An- 
tonines  had  given  peace  and  security,  and,  with  it  an 
increase  in  numbers  and  riches,  to  the  Eoman  Empire," 
and  proceeding  to  such  an  extent  as  to  allow  the  stock 
of  money  to  waste  away  to  probably  less  than  one- 
tenth  the  amount  held  in  the  reign  of  Augustus,  that 
Alison  attributes  the  Decline  and  Fall  of  that  mighty 
fabric  of  military  power,  legislative  wisdom  and  admin- 
istrative skill.  The  value  of  money  undergoing  a  con- 
tinual enhancement  by  the  falling  off  in  the  yield  of  the 
mines,  the  producing  classes  were  kept  at  a  constant 
disadvantage  in  competition  with  the  more  alert  and  in- 
telligent exchanging  and  speculative  classes ;  while  the 
debtor  class  was  put  at  an  increasing  disadvantage  in 
its  relations  with  the  creditor  class  through  the  grow- 
ing aggravation  of  all  charges  fixed  by  custom  or  by 
contract. 

From  the  long  dearth  of  money  which  prevailed  from 
the  foundation  of  the  Empire,  the  first  signs  of  revival 
came  with  the  Saracen  conquests  in  Europe,  in  the 
eighth  century.  That  revival,  however,  only  proceeded 
so  far  as,  by  Mr.  Jacob's  computations,  to  put  a  stop  to 
the  waste  of  the  stock  of  money,  and  to  keep  the  vol- 
ume in  circulation  good  from  806  to  the  period  of  the 
discovery  of  America.  "The  whole  period,"  says  this 
11* 


130  MONEY. 

writer,  "was  a  time  of  hostility  and  turbulence.  There 
was  little  security  for  any  kind  of  property,  and  less 
still  for  that  which  could  alone  induce  the  working  of 
mines  for  silver  and  gold.  None  of  the  mines  that  are 
noticed  were  uninterruptedly  wrought,  and  few  of  these 
were  worked  simultaneously.  Some  were  most  product- 
ive at  one  period,  and  then  yielded  nothing  for  centu- 
ries, while  others  were  discovered,  explored  and  speed- 
ily abandoned. 

"The  art  of  separating  the  precious  metals  from  the 
ores  and  from  the  inferior  metals  with  which  they  had 
been  mingled  had  been  lost1  since  the  time  of  the  Ko- 
man  operations,  and  were  recovered  by  the  same  slow 
and  gradual  steps  by  which  the  ancients  had  proceeded. 
As  the  mines  were  worked  in  countries  very  remote 
from  each  other,  the  improvements,  either  in  the  me- 
chanical or  scientific  process,  would  not  be  speedily  dif- 
fused, and  though  some  might  advance  rapidly,  others 
would  do  so  at  a  slower  pace." — [P.  193.] 


It  is  in  view  of  the  general  facts  of  production  re- 
cited, and  of  the  elements  of  loss  and  waste  which  have 
been  indicated,  that  Mr.  Jacob  makes  his  computations, 
so  frequently  cited  in  economical  discussions,  of  the 
quantity  of  the  precious  metals  in  circulation  at  the 
discovery  of  America. 

He  assumes  that  in  the  year  14  A.D.,  there  was  in 
existence,  as  money,  £358,000,000.  Every  thirty-six 
years  he  supposes  that  ten  per  cent.  was.  lost  by  abrasion 
in  use,  which  would  leave  in  the  year  158  A.D.,  £233,- 

1  "  L'art  m&ne  des  mines  se  perdit." — [Chevalier,  La  Monnaie,  p, 
431.] 


PRODUCTION  OF  THE  PRECIOUS  METALS.      131 

263,800 ;  in  302,  £147,374,380 ;  in  482,  £87,033,099 ;  in 
806,  £33,674,256 ;  which  last  figures  he  takes  as  repre- 
senting the  lowest  point  reached  by  the  stock  of  money 
within  historic  times.  In  the  seven  hundred  years  that 
followed,  Mr.  Jacob  holds  that  this  amount  was  kept 
good,  but  not  increased,1  by  the  yield  of  the  mines, 
especially  those  of  the  German  Empire. • 

1  To  show  the  high  purchase  power  which  money  had  obtained  in 
England  through  its  scarcity,  Mr.  Jacob  gives  numerous  illustrations, 
of  which  the  following  will  suffice : 

King  Henry  VI,  being  held  a  prisoner  by  Edward  IV  (1470), 
there  was  allowed  for  the  subsistence  of  himself  and  his  suite  of  ten 
persons,  £3  10s.  per  week.  Lady  Anne,  daughter  of  King  Edward 
III,  was  allowed  £1  11s.  weekly  "for  her  exhibition,  sustontation, 
and  convenient  diet  of  meat  and  drink." — [Inquiry  into  the  Precious 
Metals,  p.  180.] 


CHAPTER  VII. 

THE  PKODUCTION  OF  THE  PBECIOUS  METALS. — 1492-1848. 

IN  1492  America  was  discovered.  The  first  lands 
reached  by  the  Spaniards  did  not  produce  the  precious 
metals  in  abundance ;  but  enough  was  in  the  posses- 
sion of  the  natives  to  excite  the  cupidity  and  inflame 
the  imaginations  of  the  discoverers.  Their  accounts  of 
enormous  quantities  of  gold  and  boundless  treasure  are 
calculated  to  deceive  the  readers  of  the  chronicles  of 
the  early  conquests.  Humboldt  estimates  the  average 
annual  amount  of  the  precious  metals  which  America 
furnished  to  Europe,  1492  to  1500,  at  only  about 
£52,000. 

It  was  not  until  the  invasion  of  Mexico  by  Cortes,  in 
1519,  that  the  yield  was  greatly  increased.  The  Mex- 
ican treasure  consisted  mainly  of  silver,  which  metal 
was  destined  to  form  the  greater  part  of  the  New  World's 
production  during  the  next  three  centuries. 

The  conquest  of  Mexico  aroused  the  ambition  of 
Pizarro,  and  the  invasion  and  subjugation  of  Peru 
speedily  followed,  bringing  to  the  supply  of  the  ex- 
hausted circulation  of  Europe  at  once  the  large  annual 
yield  of  the  mines  of  that  country,  and  the  accumula- 
tions of  past  production,  in  the  temples  and  in  the  pal- 
aces of  the  Incas. 


PR  OD  UCTION  OF  THE  PREOIO  US  METALS.     133 

Estimating  the  annual  production  of  the  new  world 
between  1492  and  1521  (the  date  of  the  capture 
of  the  city  of  Mexico)  at  £52,000,  which  is  Hum- 
boldt's  estimate  for  the  period  1492  to  1500,  and 
which  it  is  safe  to  continue  to  1521,  we  have 

£1,308,000 

From  1521  to  1545,  Humboldt  estimates 
the  annual  production  at  £630,000,       15,750,000 

1492-1545,  £17,058,000 

In  the  latter  part  of  the  year  1545,  the  mines  of  the 
Cerro  de  Potosi  were  opened.  The  fame  of  the  dis- 
covery soon  attracted  a  large  population  and  the  mount- 
ain was  pierced  in  every  direction.  The  real  date  of 
the  finding  of  the  treasures  of  the  new  world  is  1545, 
not  1492. 

Of  far  more  lasting  consequence,  even  than  the  dis- 
covery of  the  deposits  of  Potosi,  was  the  discovery  by 
Medina1  of  the  process  of  amalgamation  by  the  use  of 
mercury.  The  mines  of  Potosi,  wonderful  as  they 
were,  would  in  time  be  exhausted ;  but  the  process  of 
this  humble  Mexican  miner  is  practiced  to-day  in  every 
quarter  of  the  globe  where  silver  ores  are  raised. 

The  annual  supply  of  the  American  mines  for  the 
fifty-four  years,  1546-1599,  Mr.  Jacob  estimates  at 
£2,100,000,  while  the  miners  of  Europe,  especially 
those  of  the  Pyrenees  and  of  Languedoc,  stimulated  by 
the  fame  of  the  trans-Atlantic  treasures,  redoubled  their 

1  "  Medina  fut  pour  1'industrie  metallurgique,  ce  que  Triptoleme 
avait  ete  pour  la  culture  du  sol  dans  les  temps  priinitifs."  .  .  . 
"  Habituellement  1'esprit  humain  n' arrive  aux  formules  simples  qu'en 
traversant  beaucoup  de  complications;  ce  pauvre  mineur  fut  plus 
heureux ;  du  premier  coup,  il  trouva  une  recette  tellement  simple,  que 
pendant  trois  siecles  on  n'y  a  presque  rien  change." — [M.  Chevalier, 
La  Monnaie.l 

12 


134  MONEY. 

exertions  and  their  production.  For  the  entire  period 
1492  to  1599,  Mr.  Jacob  makes  the  following  computa- 
tion : 

Stock  of  money  current  in  Europe,  at  the  discov- 
ery of  America,  £34,000,000 
Additional  product,  after  making  allow- 
ance  for  the  loss  by  natural  wear 

per  annum),  -  138,000,000 


£172,000,000 

Deduct  from  it  what  had  been  convey- 
ed to  Asia  (TO)  and  what  had  been 
applied  to  arts  and  industries  (-J-),  42,000,000 

Stock  in  1599,  £130,000,000 

From  1600  to  1699,  the  elements  of  the  problem  are 
increased  by  the  contributions  of  Brazil ;  and  the  esti- 
mate of  annual  production,  in  which  Mr.  Jacob  con- 
curs substantially  with  Hurnboldt,  rises  to  £3,375,000: 
Stock  of  coin,  1600,   -      £130,000,000 
Deduct  for  abrasion  and 
loss  1600-1699,       -          43,000,000 

—   £87,000,000 
Produce  of  the  mines,  100 

years,     -  337,500,000 

Transferred  to  India  and 
China,        -        -        -      33,250,000 


£304,250,000 
Deduct   as  converted  to 

other  uses  than  coin,        60,250,000 


£244,000,000 
Deduct  for  abrasion  and 
loss,  -        -          34,000,000 

210,000,000 


£297,000,000 


PR  OD  UCTION  OF  THE  PREGIO  US  METALS.     135 

It  was  in  the  latter  portion  of  the  sixteenth,  and  the 
earlier  portion  of  the  seventeenth  century,  that  the 
effects  of  the  new  supply  of  the  metals  appear  to  have 
been  realized  in  the  prices  of  produce  in  the  countries 
of  Europe.  Adam  Smith  entertains  the  view  that,  un- 
til the  year  1570,  silver  did  not  fall  in  value.1  At 
the  latter  date,  however,  the  influence  of  the  astonish- 
ing production  of  silver  at  Potosi  began  to  be  felt. 
From  1570  to  1640  silver  sank  rapidly.  Corn  rose  from 
about  two  oz.  of  silver  the  quarter,  to  six  or  eight  oz.2 
"The  discovery  of  the  abundant  mines  of  America 
seems  to  have  been  the  sole  cause  of  this  diminution  in 
the  value  of  silver,  in  proportion  to  that  of  corn.  It 
is  accounted  for,  accordingly,  in  the  same  manner  by 
everybody,  and  there  never  has  been  any  dispute,  either 
about  the  fact  or  about  the  cause  of  it." 

So  great  a  fall  in  the  value  of  the  precious  metals 
could  not  but  powerfully  affect  the  social  and  industrial 
conditions  of  Europe.  We  have  seen  how  far  Mr.  Hume 
and  Sir  A.  Alison  attribute  to  it  the  astonishing  devel- 
opments of  the  centuries  which  followed.  .  Even  so 
careful  an  economist  as  Prof.  Cairnes  declares  that  the 
produce  of  the  mines  of  the  New  World  "  supplied  and 
rendered  possible  the  remarkable  expansion  of  oriental 
trade  which  forms  the  most  striking  commercial  fact  of 
the  age  that  followed." 3 

1  Wealth  of  Nations,  i,  187-202. 

3  Mr.  Hume  wrote:  "By  the  most  exact  computations  that  have 
been  formed  all  over  Europe,  after  making  allowance  for  the  altera- 
tions in  the  numerary  value,  or  the  denomination,  it  is  found  that 
the  prices  of  all  things  have  only  risen  three,  or  at  most  four,  tunes 
since  the  discovery  of  the  West  Indies."  Mr.  Jacob  makes  out  the 
increase  to  have  been  as  from  100  to  470. 

3  Essays  in  Political  Economy,  p.  110. 


136  MONET. 

On  the  other  hand,  so  rapid  was  the  fall,  so  great 
the  disturbance  of  trade  and  industry  that  followed,  so 
wholesale  the  reduction  in  the  value  of  fixed  incomes 
and  permanent  charges,  that  wide-spread  distress  and 
much  permanent  pauperism  resulted.  Even  in  the  view 
of  those  who  advocate  the  gradual  depreciation  of  mon- 
ey, the  depreciation  effected  between  1570  and  1640 
was  too  sudden  and  violent  to  be  consistent  with  the 
best  results.  Mr.  Jacob  attributes  to  the  overwhelm- 
ing changes  in  the  purchase  power  of  money,  at  this 
period,  that  sudden  increase  of  pauperism  which  gave 
occasion  for  the  establishment  of  the  English  Poor 
Laws ;  and  those  financial  embarrassments  of  Charles  I 
which  led  to  the  Great  Rebellion.1  Instead  of  a  slow 
and  gradual  diminution  of  the  weight  of  indebtedness 
(that  mortgage  which  the  representatives  of  past  pro- 
duction hold  upon  the  produce  of  present  labor),  debts 
were,  in  many  cases,  almost  confiscated  by  the  rapid  de- 
preciation of  the  money  in  which  they  were  to  be  paid. 
The  creditor  class  was  very  generally  impoverished,  if 
not  hopelessly  ruined. 

In  seventy  years,  however,  the  work,  so  far  at  least 
as  England  was  concerned,  was  accomplished.  "Be- 
tween 1630  and  1640,  or  about  1636,"  says  Adam  Smith, 
"the  effect  of  the  discovery  of  the  mines  of  America,  in 
reducing  the  value  of  silver,  appears  to  have  been  com- 
pleted ;  and  the  value  of  that  metal  seems  never  to  have 

1  Prof.  Cairnes  holds  the  same  view:  "Less  directly,  but  still  in- 
timately connected  with  the  same  event  were  the  sudden  growth 
and  temporary  splendor  of  the  Spanish  monarchy,  the  establishment 
of  the  Poor  Laws  in  England,  the  financial  embarrassments  of 
Charles  I,  which  resulted  in  the  Long  Parliament  and  the  Revolu- 
tion, and  the  rise  and  progress  of  British  maritime  power." — [Essays, 
p.  110. 


PRODUCTION  OF  THE  PRECIOUS  METALS     137 

sunk  lower,  in  proportion  to  that  of  corn,  than  it  was 
about  this  time." 


Let  us  follow  Mr.  Jacob  in  his  further  inquiry  into 
the  Money-supply. 

Down  to  the  close  of  the  seventeenth  century,  he 
had  assumed  the  loss  by  wear,  on  the  general  mass  of 
coined  gold  and  silver,  to  be  Tg~o  annually.  The  reason 
for  this  was,  in  his  own  language,  "  If  the  rate  of  loss 
by  wear  on  gold  money  was  at  the  rate  of  one  part  in 
600,  and  that  money  was  one-sixth  of  the  circulating 
medium,  and  if  the  rate  of  loss  on  the  silver  money  was 
at  the  rate  of  one  part  in  150,  the  mean  rate  of  depreci- 
ation would  be  as  near  to  one  part  in  360  as  can  be  cal- 
culated."—[P.  300.]  After  1700,  however,  Mr.  Jacob 
adopts  a  different  assumption,  taking  the  ratio  of  silver 
to  gold  in  use,  no  longer  as  5:1,  but  as  4:1.  Gold 
being  more  durable  than  silver,  we  have  a  lower  rate 
of  annual  consumption  in  the  total  mass,  which  is 
henceforward,  for  the  purposes  of  these  computations, 
taken  as  TTO"  annually. 

The  eighteenth  century  witnessed  the  comparative 
decline  of  the  mines  of  Peru  and  the  rapid  development 
of  those  of  Mexico,1  whose  production  increased  two- 

1  M.  Chevalier,  in  his  treatise  "  La  Monnaie,"  has  set  in  striking 
contrast  the  condition  of  mining  in  the  one  country  and  in  the  other. 
"  La  plupart  des  mines  mexicaines  sont  dans  de  f  ertiles  contrees,  ou 
la  vie  est  facile.  Les  mines  du  Perou  occupent  une  terre  glacee,  en 
raison  de  son  elevation  extreme,  et  ou  les  arbres  meme  refusent  de 
croitre.  On  y  touche  de  la  main  les  neiges  e*ternelles.  .  .  .  C'est 
la  Siberie  sous  1'equateur,  la  Siberie  sans  ses  forets  qui  offrent  au 
metallurgiste  un  combustible  inepuisable ;  la  Sibe*rie  sans  ses  plaines 
aisees  a  parcourir ;  la  Siberie  sans  ses  fleuves  majestueux  qui  y  don- 
nent,  pendant  la  belle  saison,  un  systeme  de  communication  plus  com- 
mode encore  que  le  traineau  sur  les  neiges  de  1'hiver." — [Pp.  379-80.] 


138  MONEY. 

fold,  fourfold,  and  even  fivefold,  before  the   close  of 
the  period. 

Stock  in  Europe,  1700,     £297,000,000 

Deduct  for  friction  and 

loss,  1700  to  1809,  71,000,000 

£226,000,000 

Add  produce  of  mines,1      880,000,000 

Deduct  |  for  Asia,       -       352,000,000 


528,000,000 
Deduct  f  as  applied  to 

other  uses  than  coin,      352,000,000 


176,000,000 

Deduct  for  wear,  -^  an- 
nually,         -          -  22,000,000 

154,000,000 


Stock  in  1810,        -  £380,000,000 2 


The  year  1809  marks  the  beginning  of  a  new  epoch 
in  the  history  of  the  Money-supply. 

From  1492  onward,  the  yield  of  the  precious  metals, 
though  varying  greatly  at  times,  had  never  fallen  below 
what  was  necessary  to  keep  up  the  supply  of  coin,  after 
all  the  loss  in  wear,  the  consumption  of  the  metals  in 

1  Spanish  America,   about   £706,000,000;    Portuguese  America, 
about  £80,000,000 ;  gold  and  silver  from  Europe  and  gold  dust  from 
Africa,  about  £94,000,000. 

2  "  This  computation,"  adds  Mr.  Jacob,  "  though  by  a  very  different 
process,  gives  a  result  so  nearly  approaching  to  those  of  Forbonnais, 
Gerboux,  and  Heron  de  Villefosse,  that  it  seems  more  entitled  to 
confidence  than  that  of  Necker,  who  rated  the  coin  of  France  to  be 
nearly  equal  to  that  of  all  Europe,  and  the  collective  stock  not  much 
to  exceed  one-half  of  this  estimate." — [P.  315.] 


PRODUCTION  OF  THE  PRECIOUS  METALS.     139 

the  arts,  and  the  steady  and  increasing  drain  to  India ; 
while  for  the  entire  period  the  excess  of  the  supply  over 
the  requirements  for  these  purposes  had  been  such  as 
to  raise  the  amount  in  existence  throughout  the  civil- 
ized world,  as  coin,  according  to  Mr.  Jacob's  estimate, 
from  £34,0,00,000  to. £380,000,000. 

But  a  change  was  to  come.  The  disturbed  state  of 
Europe,  and  particularly  the  invasion  of  Spain  by  Bo- 
naparte, incited  the  Spanish  colonies  to  assert  their  in- 
dependence. For  twenty  years  war  and  civil  convulsions 
racked  the  populations  of  Spanish  America  to  a  degree 
that  became  almost  destructive  of  all  settled  industry, 
but  produced  their  first  and  worst  effects  upon  the  min- 
ing of  the  precious  metals.  "In  each  district,"  says 
Mr.  Ward,  in  his  work  on  Mexico,  "  the  principal  mines 
were  abandoned ;  the  machinery  was  allowed  to  go  to 
ruins,  and  the  silver  raised  was  merely  the  gleanings  of 
more  prosperous  times,  the  workings,  where  any  were 
attempted,  being  confined  almost  entirely  to  the  upper 
levels."1 

Yet,  even  in  this  abandonment  of  the  mines  by  the 
capitalists  and  by  the  organized  bodies  of  paid  and 
trained  miners,  Mr.  Ward  notes  that  production  did  not 
wholly  cease,  even  in  the  districts  most  affected.  "It 
is  a  fact,"  he  remarks,  "universally  admitted,  that  in 
almost  all  the  mining  districts,  although  the  towns  have 
been  ruined  by  the  emigration  of  the  wealthy  inhabit- 
ants, whose  capitals  were  formerly  invested  in  mining 
operations,  the  lower  classes  have  throughout  the  rev- 
olution found  means  to  draw  their  subsistence  from  the 
mines.  Under  the  denomination  of  buscones,  or  search- 
ers, they  have  never  ceased  to  work;  and  although, 

1  ii,  21. 


140  MONET. 

from  the  want  of  method  in  their  operations,  they  have 
done  the  most  serious  injury  to  the  mines  themselves, 
they  have  in  general  continued  to  extract  from  the  up- 
per levels,  or  from  the  old  workings,  neglected  in  better 
times  for  others  of  greater  promise,  a  very  considerable 
quantity  of  silver.  This  desultory  system  is  still  pur- 
sued in  many  parts  df  the  country  and  at  Zirmapan, 
Zaculapan,  El  Doctor,  and  many  of  the  northern  dis- 
tricts, a  large  population  is  even  now  maintained  by  it." 

Like  causes,  operating  between  1811  to  1820,  pro- 
duced like  effects  in  Chili,  Peru,  Colombia  and  Buenos 
Ayres.  The  gold  product  of  Brazil  had  begun  to  de- 
cline, even  by  the  middle  of  the  preceding  century,  and 
the  occasion  of  war  between  England  and  the  United 
States,  1812-5,  by  giving  an  impetus  to  the  cultivation 
of  cotton,  caused  a  still  more  rapid  decrease  in  the 
yield  of  the  mines.  At  the  same  time  the  product  of 
Hungary  and  Austria,  which  had  been  the  great  re- 
source of  Europe  during  the  money-famine  of  the  Mid- 
dle Ages,  fell  sharply  off  to  one-half  its  former  amount. 

In  one  direction  only  did  an  increase  appear.  The 
mines  of  the  Ural  mountains  in  this  period  began  to 
yield  a  large,  and,  after  1823,  constantly  increasing  vol- 
ume of  the  precious  metals. 

Mr.  Jacob  enters  with  much  detail  into  the  inquiry, 
how  much  of  the  gold  and  silver  of  Europe  and  America 
was  drawn  into  consumption  in  the  arts  during  the  pe- 
riod 1809  to  1829,  the  latter  date  marking  the  close  of 
his  Investigations.  For  the  first  time  statistical  infor- 
mation, more  or  less  precise,  is  available  to  form  the 
basis  of  his  computations.  The  facts  brought  out  in 
his  26th  Chapter  as  to  the  use  of  the  precious  metals 
by  the  gold-beaters,  the  water-gilders,  the  jewelers  and 
the  decorators  of  china-ware,  and  in  the  manufacture 


PR  OD  UCTION  OF  THE  PRECIO  US  METALS.     141 

of  plate  and  of  watches,  are  exceedingly  interesting. 
Our  space  will  not  serve  to  present  his  results  in  detail. 
One  item,  only,  deserves  to  be  taken  out  of  the  account 
and  separately  stated : 

"According  to  the  information  collected  from  the 
most  considerable  refiners,  who  are  commonly  the  pur- 
chasers of  broken  pieces  of  gold  and  silver,  of  burned 
lace  and  picture  frames,  and  of  foreign  gold  and  silver 
coins,  the  quantity  of  old  metal  used  in  this  trade  is  very 
small. 

"  TVe  cannot  deem  these  meltings  of  old  gold  and  sil- 
ver goods  to  have  contributed  more  than  a  fortieth  part 
to  the  precious  metals  that  have  been  applied  to  useful 
or  ornamental  purposes  during  the  last  twenty  years." 
—[P.  367.] 

Of  the  drain  to  the  East,  Mr.  Jacob  remarks : 

"  In  the  former  part  of  this  inquiry,  in  all  the  recent 
divisions  of  the  subject,  a  large  and  rather  doubtful  al- 
lowance has  been  made  for  that  portion  of  the  precious 
metals  which  passed  to  the  several  parts  of  Asia  by  the 
channels  which  Humboldt  has  traced. 

"A  great  change  has  been  effected  in  the  commerce  of 
the  East  within  a  few  late  years.  .  .  .  Though  large 
quantities  have  been  transported  there  in  some  years, 
other  quantities  have  been  again  returned  to  Europe, 
not,  indeed,  of  the  same  species  of  metal,  nor  in  equal 
quantities.  Silver  has  been  conveyed  to  Asia,  and  gold 
has  been  exported  from  thence." 

After  a  criticism  of  the  estimates  of  Humboldt,  which 
he  deems  excessive,  Mr.  Jacob  concludes :  "  "We  see  no 
necessity  for  considering  the  whole  trade  of  Asia,  taken 
collectively,  to  have  absorbed  more  of  the  stock  of  the 
precious  metals  which  Europe  had  collected  from  the 


142  MONEY. 

mines  of  America  and  from  those  within  her  limits, 
than  to  the  amount  of  £2,000,000,  annually,  within  the 
twenty  years  we  have  been  reviewing." 

Mr.  Jacob  issues  from  his  investigation  of  the  Money- 
supply  of  the  period  1809-1829,  with  the  following  re- 
sults : 

Stock  of  coin,  1810,      -  £380,000,000 

Loss  by  abrasion,  -    18,095,220 

361,904,780 
Supply  of  the  mines1      -  103,736,000 

£465,640,780 
Converted  into  utensils 

and  ornaments  £112,252,220 

transferred  to  Asia       -         40,000,000 

152,252,220 


£313,388,560 

So  marked  a  diminution  in  the  Money-supply  of  the 
world,  coinciding  with  the  vast  increase  of  public  and 
private  indebtedness,  could  not  but  excite  serious  ap- 
prehension as  to  the  future  among  economists  and 
statesmen.  The  apprehension  felt  on  this  subject  was, 
indeed,  the  motive  of  the  investigation  which  Mr.  Jacob 
undertook,  with  the  results  which  have  been  exhibited. 
We  have  seen  with  what  alarm  the  English  historian  of 
this  period  of  European  politics  contemplated  the 
threatened  reduction  of  the  Money-supply  through  an 
indefinite  future. 

For  the  period  between  1830  and  1848,  we  have  no 
such  careful  guide  to  follow.  The  general  facts  are 

1  Of  which  Spanish  America  furnished  £76,626,768;  Brazil,  £4,- 
110,000. 


PRODUCTION  OF  THE  PRECIOUS  METALS.     143 

known.  From  1823,  as-  has  been  stated,  the  production 
of  the  Ural  Mountains  took  on  a  steady  rate  of  increase, 
while  later  still,  about  1830,  the  auriferous  sands  of 
Siberia1  became  known,  and  after  1840  yielded  a  far 
larger  mass  of  gold  than  that  taken  from  the  Ural  re- 
gion. By  1848  the  annual  supply  of  gold  alone  .had 
risen  to  about  £8,000,000,  as  estimated  by  Chevalier,  a 
yield  quite  sufficient  to  remove  all  apprehension  of  a 
positive  decline  in  the  supply,  and,  indeed,  adequate  to 
secure  a  progressive  increase  of  the  stock  of  money. 

1  M.  Leon  Faucher  strongly  contrasts  the  popular  character  of  gold 
mining  in  Australia  and  California,  with  the  severe  restraints  and 
high  taxes  imposed  on  this  industry  by  the  government  of  Russia. 


CHAPTER  VIII. 

THE  PRODUCTION  OF  THE  PRECIOUS  METALS — THE   CALIFOR- 
NIAN  AND  AUSTRALIAN  EPISODE. 

IN  1848  the  existence  of  rich  and  vast  deposits  of 
gold  on  the  Pacific1  coast  of  the  United  States  was 
made  known,  followed  quickly  by  the  Australian  discov- 
eries of  1851.  At  once  the  annual  yield  of  the  precious 
metals  rose  to  £38,000,000. 

Of  the  disturbance  of  the  proportions  existing  be- 
tween the  values  of  gold  and  silver,  from  the  fact  that  the 
new  supply  was  almost  exclusively  of  the  former  metal, 
we  shall  find  occasion  to  speak  hereafter.2  An  increase 
so  sudden,  so  tremendous,  in  the  volume  of  the  precious 
metals  was  well  calculated  to  arouse  the  expectation  of 
economists. 

"The  auriferous  rocks  and  sands  of  California  and 
Australia,"  wrote  Prof.  Cairnes,3  "are  as  much  superior, 
in  richness  and  abundance,  to  those  which  rewarded  the 
industry  of  the  Spanish  adventurers,  as  the  latter  were 
superior  to  all  which  had  been  previously  known." 

"The  circumstances  of  the  present  time,"  he  contin- 

1  Up  to  this  time  gold  had  been  produced  at  several  points  on  the 
Atlantic  Slope,  especially  in  North  Carolina  and  Georgia.  It  was 
also  raised  in  very  small  amounts  in  Virginia,  South  Carolina,  Ala- 
bama and  Tennessee. 

3  See  p.  233-5. 

8  Essays  in  Political  Economy,  p.  110. 


PRODUCTION  OF  THE  PRECIOUS  METALS.     145 

ued,  "are  not  such  as  to  preclude  the  possibility  of  a 
recurrence  of  events  similar,  or  analogous,  to  those 
which  the  first  American  discoveries  drew  after  them. 
Those  events  were  of  the  greatest  moment  to  mankind. 
They  included  the  rapid  colonization  of  America  by 
European  races ;  great  and  lasting  changes  in  the  chan- 
nels of  trade;  striking  vicissitudes  in  the  fortunes  of 
nations,  and  a  monetary  revolution,  the  effects  of  which 
have  been  felt  in  every  quarter  of  the  globe." 

It  was  in  a  sort  of  panic  at  the  effects  of  the  new  sup- 
plies to  be  anticipated  in  the  immediate  future  that 
M.  Chevalier  wrote  his  well-known  work  on  the  "Prob- 
able Fall  in  the  Value  of  Gold;"  but  as  M.  Chevalier 
directs  his  attention  mainly  to  the  disturbance  of  the 
relations  between  gold  and  silver,  and  that,  too,  with 
specific  reference  to  the  monetary  legislation  of  his  own 
country,  dealing'  slightly  with  the  changes  which  the 
new  money,  by  altering  the  distribution  of  purchasing 
power  in  the  world,  should  produce  in  the  movements 
of  trade  and  the  fortunes  of  nations,  I  prefer  to  deal 
with  the  wider  views  of  Prof.  Cairnes,  presented  in  four 
papers,  written  at  various  dates  between  1859  and  1872, 
which  occupy  the  first  part  of  his  volume,  entitled 
"Essays  in  Political  Economy,"  a  work  which,  with 
the  treatise  by  the  same  writer  on  the  "Character  and 
Logical  Method  of  Political  Economy,"  may  be  com- 
mended unreservedly  to  every  student  of  the  science. 

What,  then,  were  the  facts  with  which  Prof.  Cairnes 
had  to  deal?  In  a  word,  the  production  of  the  precious 
metals  had  suddenly  sprung  into  an  activity,  due  to  the 
discovery  of  mines  in  hitherto  unsettled  and  but  par- 
tially explored  regions,1  which  seemed  to  show  the  capa- 

1  "  Between  the  years  1849-1868  it  is  calculated  that  gold  valued 
at  £657,000,000,  and  silver  at  £345,000,000  have  been  added  to  the 


146  MONEY. 

bility l  of  doubling  the  stock  of  the  world  in  twenty  or 
twenty-five  years. 

What  was  to  come  of  this? 

Let  us  revert  to  our  statement  of  the  elements  of  the 
problem  of  the  Money-supply.  The  loss  of  coin  by 
abrasion  in  use  is  now  reduced  to  a  minimum,  first,  by 
improvements  in  coinage,  especially  in  the  matter  of 
alloys,  and,  secondly,  by  the  very  general  use  of  paper 
substitutes  for  coin  in  circulation. 

Prof.  Cairnes  had  next  to  consider  the  probable  de- 
mand for  the  consumption  of  the  metals  in  the  arts. 
On  this  point  he  adds  nothing  to  the  minute  and  search- 
ing analysis  of  M.  Chevalier,  but  adopts  the  conclusion 
reached  by  that  economist,  viz.,  that  not  much  was  to 
be  expected  from  the  extending  use  of  gold  in  manu- 
factures2 as  a  means  of  disposing  of  the  new  supplies. 

India  and  the  East  remained  as  the  possible  absorb- 
ent of  the  stock  of  silver,  so  far  as  it  should  be  released 

stock  of  precious  metals  in  the  world.  Of  this  gold,  £365,000,000 
have  been  added  from  new  sources." — [Rogers's  Notes  to  Adam 
Smith,  i,  250".] 

1  In  reading  the  essays  of  Prof.  Cairnes  and  the  work  of  Chevalier 
on  "  Gold,"  it  should  be  remembered  that  they  wrote  at  a  time  when 
California  and  Australia  still  possessed  vast  tracts  which  had  not 
been  subjected  to  scientific  survey  or  even  to  reconnoissance ;  and 
thus  the  extent  of  the  gold  fields  could  scarcely  be  conjectured.. 

3  Prof.  Cairnes  deems  the  use  of  gold  for  ornaments  characteristic 
of  semi-barbarous  li^e.  "  The  superfluous  expenditure  of  a  nation 
advancing  in  civilization  is  accordingly  devoted  less  and  less  to  ob- 
jects which  absorb  mere  masses  of  gold  and  silver,  and  more  and 
more  to  purposes  of  a  higher  order ;  to  the  beautifying  of  its  do- 
mains, the  embellishing  of  its  houses,  the  general  cultivation  of  its 
tastes ;  and  parks  and  mansions,  pictures,  sculpture  and  books,  take 
the  place  of  accumulations  of  plate  and  collections  of  jewelry." 
—[P.  133.] 


PRODUCTION  OF  THE  PRECIOUS  METALS.     147 

from  the  offices  of  money  by  the  superabundant  sup- 
plies of  gold  pouring  into  Europe  from  the  new  mines. 

The  capacity  of  the  East  to  absorb  the  precious  met- 
als in  vast  amounts  had  been  amply  demonstrated  when 
Prof.  Cairnes  wrote.  According  to  the  computations  of 
M.  Chevalier,  the  exports  of  silver  to  India  and  China 
reached,  in  1857,  the  prodigious  sum  of  £20,145,921, 
"that  is  to  say,  more  than  double  the  yield  of  all  the 
silver  mines  that  supply  the  markets  of  the  Western 
world."1  "This  exportation,"  continues  the  writer,  "is 
independent  of  an  exportation  of  probably  one-tenth  of 
the  above  amount  in  gold,  which  has  been  going  on  dur- 
ing the  last  few  years."  The  closing  remark  intro- 
duces a  new  feature  of  the  situation.  The  East,  which 
from  the  earliest  ages  had  never  ceased  to  exchange  its 
gold  for  the  silver  of  the  West,  had  itself  become,  in  no 
inconsiderable  degree,  a  consumer  of  gold.2 

In  spite  of  the  apparent  capacity  and  disposition  of 
India  and  China  to  absorb  a  great  portion  of  the  new 
supplies  of  the  precious  metals,  Prof.  Cairnes  was  not 
prepared  to  accept  this  as  the  solution  of  the  problem. 

"In  India,"  he  wrote,  "though  more  than  a  century 

1  On  Gold,  p.  65.     M.  Chevalier  explains  this  increase  in  the  ship- 
ments of  silver  partly  by  the  civil  war  in  China,  causing  a  demand 
for  that  form  of  wealth  which  can  be  most  easily  concealed,  and 
partly  by  the  Indian  Mutiny,  involving  extraordinary  expenditures 
by  the  government  for  the  supply  of  troops  in  the  field.     The  falling 
off  in  the  European  grain  crop  had  also  increased  the  demand  for  the 
rice  of  the  East,  and  the  failure  of  the  crop  of  silk  in  Italy  and 
France  had  obliged  manufacturers  to  resort  to  China  for  a  much 
larger  portion  than  usual  of  their  material. 

2  The  London  "Economist"  estimates  that  between  1858  and  1872 
China  and  India  received  and  retained  £90,000,000  in  gold.     Little, 
however,  of  this  is  used  as  money ;  see  the  Report  of  Mr.  Groschen's 
Committee,  Q.  939,  1015,  1085. 


148  MONEY. 

under  British  rule,  the  advantages  of  credit,  as  a  medi- 
um of  exchange,  are  only  beginning  to  be  understood. 
The  circulation  of  bank-notes  is  exceedingly  limited, 
and  is  still  confined  to  some  of  the  Presidency  towns ; 
checks,  by  which  so  large  a  portion  of  the  business  of 
this  country  is  carried  on,  are  but  slightly  used ;  and 
the  great  mass  of  transactions  is  effected  by  a  transfer  of 
rupees  bodily  in  every  sale.  The  magnitude  of  the 
transactions  conducted  in  this  manner  may  be  estimated 
by  the  fact  stated  by  Sir  Charles  Napier,  that  the  es- 
cort of  treasure  constituted  one  of  the  severest  duties 
of  the  late  Bengal  army ;  from  20,000  to  30,000  men  being 
constantly  occupied  in  this  manner.  The  quantity  of 
the  precious  metals  employed  in  thus  carrying  on  the 
internal  traffic  of  India  has  been  variously  estimated 
between  £150,000,000  and  £300,000,000.  But  this  state 
of  things  is  evidently  not  destined  to  be  of  long  contin- 
uance. Mr.  Wilson's  recent  minute  gives  grounds  for 
believing  that  the  Indian  government  are  alive  to  this 
subject,  and  that  India  will  soon  enjoy  the  advantages 
of  an  effective  paper  system.  Such  an  event  cannot 
fail  to  be  attended  with  important  consequences  on  the 
trade  and  industry  of  that  country ;  and  among  these 
consequences  we  may  expect  this,  that,  instead  of  re- 
quiring, as  now,  continuous  large  additions  to  her  pres- 
ent enormous  stock  of  metallic  money,  she  will  not  only 
be  enabled  to  dispense  with  these,  but  will  find  it  for 
her  interest  to  part  with  a  large  portion  of  what  she 
now  employs ;  the  coin  thus  liberated  will  form  a  new 
tributary  to  swell  the  increasing  surplus,  and  the  influ- 
ences tending  to  depress  the  value  of  gold  will  be  in- 
creased." l 

1  Essays  in  Political  Economy,  p.  127. 


PRODUCTION  OF  THE  PRECIOUS  METALS.     149 

For  the  above  reasons  Prof.  Cairnes  held  with  M. 
Chevalier,  that  "the  currency  offers  the  one  sole  chan- 
nel by  which  the  principal  part  of  the  enormous  pro- 
duction of  gold  can  find  an  outlet : "  the  population  of 
civilized  countries  advancing  at  the  rate  of  one  and  a 
half  per  cent,  per  annum  ;  gold,  or  at  least  that  portion 
which  goes  into  general  circulation,  increasing  by  more 
than  ten  per  cent,  per  annum. 

So  much  for  the  Money-supply.  How  of  the  demand  ? 
Will  the  increasing  requirements  of  trade  absorb  any 
large  proportion  of  the  new  supplies  without  allowing  a 
rise  of  prices,  that  is,  a  depreciation  of  money?  To 
this  Prof.  Cairnes  replies :  "  The  proportion  of  the 
trade  of  the  world  which  is  carried  on  with  metallic 
money  is  daily  diminishing  and  constantly  tends  to  di- 
minish." In  one  direction  only  Prof.  Cairnes  found  an 
occasion  for  an  actual  increase,  though  not  an  exten- 
sive one,  of  the  Money-supply  without  an  advance  of 
prices ;  but  to  state  this  new  source  of  demand  would 
be  to  anticipate  the  natural  development  of  the  argu- 
ment. I  shall,  therefore,  refer  to  it  at  a  later  period.1 

In  general,  then,  we  may  say  that  Prof.  Cairnes  agreed 
with  M.  Chevalier  in  holding  that  "  the  Currency  "  af- 
forded the  main  channel  by  which  the  new  supplies 
must  find  their  outlet;  and,  also,  in  holding  that  the 
wants  of  trade  were  not  likely  to  allow  such  an  addition 
to  the  money  of  the  world 2  without  an  advance  of  prices, 
that  is,  without  a  depreciation  of  money :  a  deprecia- 
tion which,  if  the  rate  of  production  was  to  be  main- 
tained, must  be  rapid  and  extensive. 

1  See  p.  156. 

2  "  It  would  be  difficult  to  estimate  at  more  than  6  milliards  [£240,- 
000,000]  the  sum  required  for  the  circulation,  independently  of  silver 
money,  of  all  the  nations  of  Christendom." — [Chevalier  on  Gold,  p. 
100.] 


150  MONEY. 

"With,  what  results  to  the  several  countries  of  the 
world  and  to  the  several  classes  of  commodities  ?  Prof. 
Cairnes's  inquiry  into  these  effects  of  the  new  Money- 
supply  constitutes  one  of  the  most  valuable  of  recent 
contributions  to  economical  science. 

It  will  appear  that  all  the  positive  results  a  writer  may 
obtain  in  such  an  investigation  must  be  in  contravention 
or  modification  of  Mr.  Eicardo's  principle  of  the  distri- 
bution of  the  precious  metals.  If  such  a  distribution  is 
to  be  achieved  only  with  appreciable  intervals,  allowing 
effects  of  serious  consequence  to  be  wrought,  as  the  new 
supplies  pass,  by  equable  process,  or  "by  jerks,"  to  use 
M.  Chevalier's  phrase,  from  one  country  to  another, 
from  one  class  of  commodities  to  another,  from  one 
body  of  producers  to  another,  we  shall  find  the  neces- 
sity, which  it  was  intimated  at  the  outset1  might  arise, 
of  qualifying  the  principle  which  we  provisionally  ac- 
cepted, as  governing  the  relative  proportions  in  which 
the  money  of  the  world  is  to  be  divided  among  the  sev- 
eral nations,  communities  and  classes  of  producers. 

Prof.  Cairnes  holds  strongly  that  it  is  of  distinct 
economical  consequence  where  the  gold-supplies  issue ; 
and  in  what  relations,  geographical  and  commercial, 
other  nations  stand  to  the  sources  of  the  new  produc- 
tion. That  is,  he  holds  that  the  immediate  effects  of 
that  production  would  be  importantly  different  were 
the  thirty  or  forty  million  pounds  yearly  issuing  from  Cal- 
ifornia and  Australia  to  be  yielded  by  mines  scattered 
over  the  surface  of  Europe  arid  Asia.  "Gold  and  silver, 
like  all  other  things  which  are  the  subjects  of  interna- 
tional exchange,  possess  local  values  ;2  and  it  is  by  a  suc- 


1  See  p.  57. 

2  "  The  lower  the  local  value  of  the  precious  metals  in  any  country, 
the  greater  will  be  the  advantage  to  that  country  in  foreign  markets." 


PRODUCTION'  OF  THE  PRECIOUS  METALS.     151 

cession  of  operations  on  the  local  values  of  gold  of  an 
unequal  and  fluctuating  character,  that  its  depreciation 
is  being  effected,  and  that  (the  conditions  of  production 
remaining  as  at  present)  its  value  will  continue  to  de- 
cline. The  twofold1  rise  of  prices  in  the  gold  countries 
forms  the  first  step  in  this  progress,  and  it  will  be 
through  a  series  of  similar  partial  advances  in  other 
countries,  and  not  by  any  general  movement,  that  the 
depreciation  of  the  metal  throughout  the  world  will  be 
accomplished,  if  that  consummation  is  indeed  to  take 
place."— [P.  82.] 

So  vast  a  volume  of  the  precious  metals  cannot,  Prof. 
Cairnes  holds,  be  poured  into  the  reservoir  from  which 
the  nations  draw  their  supplies,  without  producing  dis- 
turbances which  will  be  very  unequally  experienced  by 
the  several  nations,  according  as  they  are  geographic- 
ally -and  commercially  near  to  or  remote  from  the  place 
of  discharge.  Of  the  great  depreciation  in  the  16th 
Century,  he  remarks :  "  This  disturbance  was  in  favor 
of  the  Spanish,  the  Portuguese  and  the  Dutch,  while  the 
English,  further  removed  from  the  spring-head  of  the 
new  metal,  received  their  supplies  more  slowly  and  in 
scantier  streams.  Money  incomes  in  England  there- 
fore rose  less  rapidly  than  prices  in  common  markets ; 
and  the  population  of  England  suffered  accordingly. 
We  have  no  doubt  that  this  was  a  leading  cause  of  the 
industrial  distress  which  prevailed  throughout  a  por- 
tion of  the  reign  of  Queen  Elizabeth,  and  which  led  to 
the  introduction  of  the  Poor  Laws." 

— [P.  84.]     ..."  Every  country,  therefore,  is  interested  in  rais- 
ing as  rapidly  as  possible  the  prices  of  its  productions — in  other 
words,  in  the  most  rapid  possible  depreciation  of  the  local  value  of 
its  gold."— [P.  85.] 
1  See  p.  153. 


152  MONEY. 

"In  the  present  gold  movement,  however,  'the  tables 
have  been  turned,  and  the  monetary  disturbance  is  now 
in  favor  of  the  Anglo-Saxon.  It  is  now  England  and 
the  United  States  that  have  their  hands  in  the  till,  and 
the  money  which  they  extract  is  employed  in  raising 
prices1  against  the  nations  which  in  the  16th  Century 
were  gainers  at  their  expense." — [P.  150.] 


But  if  such  effects  are  to  be  wrought  as  between  na- 
tions, according  as  they  are  geographically  and  com- 
mercially near  to  or  remote  from  the  sources  of  supply, 
Prof.  Cairnes  attributes  to  the  gold  discoveries  a  decid- 
ed potency,  also,  in  altering  the  distribution  of  wealth 
among  the  different  producing  classes  of  each  nation  by 
turns.  Ultimately,  in  this  respect,  as  between  nations, 
Prof.  Cairnes  admits  that  an  increase  of  money,  where 
the  conditions  of  production  remain  in  other  respects 
the  same,  must  come  to  affect  the  prices  of  all  commod- 
ities and  services  in  an  equal  degree ;  "  but  before  this 
result  is  attained,  a  period  of  time,  longer  or  shorter  ac- 
cording to  the  amount  of  the  augmentation  and  the 
general  circumstances  of  commerce,  must  elapse.  In 
the  present  instance,  the  additions  which  are  being 

1  ''  The  rise  in  price  has  been  most  rapid  in  commodities  produced  in 
the  gold  countries ;  having  in  these,  at  a  single  bound,  reached  its 
utmost  limit — the  limit  set  by  the  cost  of  procuring  gold.  After 
commodities  produced  in  the  gold  regions,  the  advance,  I  conceive, 
will  proceed  most  rapidly  in  the  productions  of  England  and  the 
United  States;  after  these,  at  no  great  interval,  in  the  productions 
of  the  continent  of  Europe  ;  while  the  commodities  the  last  to  feel 
the  effects  of  the  new  money,  and  which  will  advance  most  slowly 
under  its  influence,  are  the  productions  of  India  and  China,  and  I 
may  add,  of  tropical  countries  generally  so  far  as  these  share,  as  re- 
gards their  economic  conditions,  tlie  general  character  of  the  former 
countries."— [P.  73.]  This  was  written  in  1858. 


PRODUCTION  OF  THE  PRECIOUS  METALS.     153 

made  to  the  monetary  systems  of  the  world  are  upon 
an  enormous  scale,  and  the  disturbance  effected  in  the 
relation  of  prices  is  proportionately  great.  Under 
such  circumstances  it  is  very  possible  that  the  inequali- 
ties resulting  may  not  find  their  correction  throughout  the 
whole  period  of  progressive  depreciation ;  a  period  which 
even  with  our  present  facilities  of  production  and  dis- 
triljution  may  easily  extend  over  some  thirty  or  forty 
years.  During  this  transitionary  term,  the  actions  of 
the  new  gold  on  prices  will  not  be  uniform,  but  partial. 
Certain  classes  of  commodities  and  services  will  be  af- 
fected much  more  powerfully  than  others.  Prices  gen- 
erally will  rise,  but  with  unequal  steps." — [P.  56.] 

An  increased  production  of  gold,  argues  Prof.  Cairnes, 
operates  to  raise  prices  by  a  twofold  process,  first,  di- 
rectly, through  the  medium  of  an  enlarged  money-de- 
mand ;  secondly,  indirectly,  through  curtailing  the  sup- 
ply of  articles  which  do  not  come  within  the  range  of 
the  new  demand. 

The  rise  of  wages  in  the  industries  which  feel  the  force 
of  the  new  demand  will  raise  wages  in  those  depart- 
ments not  so  affected ;  but  the  prices  of  their  products 
cannot  advance  proportionally ;  hence  profits  fall  below 
the  average,  which  contracts  the  production  and  the 
supply  offered. 

"An  increased  supply  of  money  thus  tends,  by  one 
mode  of  its  operation,  to  raise  prices  in  advance  of 
wages,  and  thus  to  stimulate  production ;  by  another,  to 
raise  wages  in  advance  of  prices,  and  thus  to  check  it; 
in  both,  however,  to  raise  wages,  and  thus  ultimately  to 
render  necessary,  in  order  to  the  maintenance  of  profits, 
a  general  and  permanent  elevation  of  prices."1 — [P.  60.] 

1  This  is  not  inconsistent  with  Eicardo's  doctrine  that  "  high  wa- 
ges do  not  make  high  prices."  That  doctrine  assumes  the  value  of 
money  to  be  constant. 


154  MONEY. 

In  this  view,  Prof.  Cairnes  turns  his  attention  to  three 
points  : 

1.  What  is,  and  is  likely  to  be,  the  direction  of  the 
new  expenditure  ? 

2.  What  are  the  facilities  for  extending  the  supply  of 
the  articles  which  feel  the  force  of  the  new  demand? 

3.  What  is  the  term  within  which  the  production  of 
articles  which  are  left  out  of  the  new  demand  may  be 
duly  curtailed  ? 

As  to  the  first  point,  the  new  expenditure  will  natu- 
rally be  determined  by  the  habits  and  tastes  of  the  per- 
sons into  whose  possession  the  new  money  comes,  viz., 
in  the  first  instance,  the  inhabitants  of  the  gold  coun- 
tries, and  secondly,  those  persons  in  other  countries 
who  can  best  supply  the  wants  of  the  former  class. 
"Speaking  broadly, we  may  say  that  the  persons  who 
will  chiefly  benefit  by  the  gold  discoveries  belong  to  the 
middle  and  lower  ranks  of  society,  in  a  large  degree  to 
the  lowest  rank,  the  class  of  unskilled  laborers." — [P. 
61.]  What  the  principal  objects  of  their  expenditure 
are  likely  to  be,  does  not  require  to  be  indicated. 

As  to  the  second  point,  the  facilities  for  extending  the 
supply  will  depend  on  two  circumstances :  (a)  the  de- 
gree in  which  machinery  can  be  employed ;  (&)  the  de- 
gree in  which  the  process  of  production  is  independent 
of  natural  agencies  which  require  time  for  accomplish- 
ing their  ends.1  "The  distinctions  marked  by  these 
two  conditions,  it  will  be  found,  correspond  pretty  ac- 

1  Thus,  the  production  of  cotton  throughout  the  world  might  con- 
ceivably be  increased  thirty  or  fifty  per  cent,  in  a  single  year,  in 
obedience  to  a  strong  demand.  It  would  take  several  years  to  in- 
crease the  production  of  wool  in  the  same  degree.  In  the  former 
case,  it  would  only  be  necessary  to  sow  a  greater  breadth  of  land ;  in 
the  latter  case,  the  increase  of  the  flocks  would  require  time. 


PRODUCTION  OF  THE  PRECIOUS  METALS.     155 

curately  with  two  other  distinctions — with  the  distinc- 
tion, viz.,  between  raw  and  manufactured  products ; 
and,  amongst  the  raw  products,  with  that  between  those 
derived  from  the  animal  and  those  derived  from  the 
vegetable  kingdom." — [P.  61.] 

As  to  the  third  point :  the  supply  of  a  commodity  is 
not  at  once  or  easily  contracted,  on  a  falling  off  of  de- 
mand, inasmuch  as  capital 1  is  invested  in  the  produc- 
tion and  cannot  disengage  itself.  ."The  difficulty  of 
accomplishing  this  will  generally  be  in  proportion  to 
the  amount  of  fixed  capital  employed ;  and  the  princi- 
pal form  in  which  fixed  capital  exists  is  that  of  machin- 
ery. It  is,  therefore,  in  articles  in  the  production  of 
which  machinery  is  extensively  employed — that  is  to 
say,  in  the  more  highly  finished  manufactures — that 
the  contraction  of  supply  will  be  most  difficult ;  and 
this,  it  will  be  observed,  is  also  the  kind  of  commodities 
for  extending  the  supply  of  which  the  facilities  are 
greatest.  While,  therefore,  manufactured  articles  can 
never  be  very  long  in  advance  of  the  general  movement 
of  prices,  they  may,  of  all  commodities,  be  the  longest 
in  arrear  of  it."— [P.  63.] 

We  have,  perhaps,  already  sufficiently  discussed  the 
effects  of  a  depreciation  of  money,  in  producing  a  dim- 
inution in  the  burden  of  permanent  charges,  rents, 
taxes,  interest,  etc. 

1  Prof.  Cairnes  gives  much  less  weight  here  than  he  should  do — 
less  than  he  himself  has  given  in  his  "Political  Economy"  (see  his 
theory  of  "Non-Competing  Groups,"  pp.  70-3) — to  the- consideration 
that  labor,  also,  is  committed  to  certain  lines  of  production,  and  can- 
not soon  or  easily  change  its  direction.  In  a  degree,  therefore,  it 
submits  to  reductions  of  wages,  which  allow  of  prices  being  reduced 
without  a  corresponding  diminution  of  profits,  hence  stimulating  de- 
mand, and  hence  breaking  the  force  of  the  impulse  to  contract  pro- 
duction. 


156  MONEY. 

What,  to  follow  out  Prof.  Cairnes's  reasoning  in  a  sin- 
gle direction  only — for  our  space  will  allow  no  more — 
what  will  be  the  influence  of  the  progressive  depreciation 
of  the  precious  metals,  upon  the  condition  of  the  work- 
ing classes?  M.  Chevalier  had  held  that  the  effects  must 
be  prejudicial,  at  least  while  the  change  should  be  in 
progress.  "Experience  shows,"  he  declares,  "that 
when  provisions  rise,  wages  are  not  necessarily  raised 
in  the  same  proportion."  Prof.  Cairnes,  on  the  other 
hand,  says  of  the  working  classes,  "  the  general  effect  of 
the  gold  discoveries  will  be  to  alter  the  distribution  of 
wealth  in  their  favor,  and,  on  the  whole,  to  benefit 
them." — [P.  148.]  The  proposition  that  prices  rise 
earlier  and  further  than  wages,1  he  regards  as  essen- 
tially unsound.  If  the  prices  of  the  laborers'  provisions 
and  clothing  rise,  it  is  because  more  money  is  spent 
upon  them.  "  The  rise  in  wages,  in  short,  is  (when  it 
proceeds  from  abundance  of  money)  the  cause  of  the 
rise  of  the  price  of  commodities."  And  here  we  find,  in 
Prof.  Cairnes's  view,  a  certain  occasion  for  an  increased 
demand  for  money  which  will  take  up  a  portion  of  the 
new  supply  without  involving  a  rise  in  prices.  "  As  the 
production  of  gold  continues,  the  proportion  of  the  ag- 
gregate wealth  of  the  world,  which  goes  to  the  industrial 
classes,  will  increase ;  and,  the  field  of  credit  contract- 
ing as  we  descend  in  the  scale  of  society,  the  necessity 
for  coin2  will  increase  also." — [P.  131.] 

This  influence  of  the  gold  discoveries,  in  throwing 

1  We  shall  have  occasion  to  consider  this  proposition  when  treat- 
ing of  inconvertible  paper  money. 

2  It  was  from  the  operation  of  this  principle,  according  to  this 
writer,  that  England  between  1851  and  1860  absorbed  into  its  retail 
circulation  an  addition  to  its  gold  money  of  not  less  than  forty  per 
cent,  without  anything  like  a  commensurate  advance  of  prices,  the 
population  not  having  increased  ten  per  cent,  meanwhile. 


PRODUCTION  OF  THE  PRECIOUS  METALS.     157 

into  the  hands  of  the  industrial  classes  an  increased 
share  of  the  purchasing  power  of  the  world,  Prof. 
Cairnes  regards  as  "  the  great  redeeming  incident  of  the 
gold  discoveries.  In  almost  every  other  aspect  in 
which  we  contemplate  the  occurrence,  it  is  fraught  with 
inconvenience,  hardship,  and  injustice,  introducing  un- 
certainty into  mercantile  dealings,  disturbing  contracts 
which  were  designed  to  be  fixed,  stimulating  the  spirit 
of  commercial  speculation,  already  too  strong,  and  bring- 
ing unmerited  loss  upon  classes1  who  have  the  strong- 
est claims  on  our  sympathy  and  whom,  upon  social 
grounds,  it  is  most  desirable  to  sustain." — [P.  152.] 
"  That  good  will  on  the  whole  pre*dominate,  we  believe ; 
but  let  us  not,  on  that  account,  close  our  eyes  to  the  se- 
rious cost  at  which  this  preponderance  of  good  will  be 
obtained."— [P.  158.] 

On  the  other  hand,  we  have  quoted  the  opinion  of 
Mr.  J.  E.  McCulloch,  that  while  cases  of  individual 
hardship  may  arise,  a  progressive  depreciation  of  mon- 
ey is,  like  a  fall  of  rain  after  a  long  drouth,  beneficial 
to  incomparably  the  larger  part  of  society,  and  is  of 
great  public  and  national  advantage. 

COEN-BENTS. 

The  narrative  given  in  this  and  the  two  preceding 
chapters  has  exposed  the  one  failing  of  the  precious 

1  The  classes  suffering  by  the  depreciation  of  money  are,  according 
to  this  writer,  first,  those  living  on  fixed  incomes,  including  especially 
widows,  orphans,  and  aged  persons;  and  secondly,  those  "whose 
remuneration  is  determined  more  by  custom  than  by  competition, 
and  this  description  includes  a  much  larger  number  of  persons  than 
is  commonly  supposed,"  especially  the,  members  of  the  learned  profes- 
sions, civil  officials,  salaried  servants,  etc.  On  the  other  hand,  the 
tax-payer  gains,  the  lessee,  the  mortgagor,  the  client  of  the  lawyer, 
the  patient  of  the  physician,  etc.,  etc. 


158  MONEY. 

metals  in  their  use  as  money.  That  weakness  appears 
solely  in  the  function  of  a  standard  for  deferred  pay- 
ments.1 As  the  medium  of  exchange,  or  the  denomina- 
tor of  values,  gold  and  silver  have  fully  justified  the 
preference  bestowed  upon  them  by  the  general  consent 
of  mankind  in  the  earliest  ages.  No  article  that  could 
be  taken  combines  so  many  qualities  fitting  it  for  such 
a  use. 

Moreover,  as  a  standard  for  deferred  payments,  with- 
in ordinary  terms  of  commercial  credit,  the  precious 
metals  derive  from  their  slow  consumption  in  use  and 
their  absolute  imperishableness  in  store,  a  stability 
which  no  other  important  article  of  commerce  attains. 
From  year  to  year  these  metals  hold  their  way  with 
great  steadiness,  while  cotton,  corn,  coal,  and  most 
of  the  necessaries  of  life  fluctuate  from  month  to  month, 
often  within  a  wide  range  of  prices. 

When,  however,  contracts  have  to  be  made  for  long 
periods,  as  in  the  lease  of  lands  and  buildings,  or  in  loans 
to  governments  or  corporations,  there  is  always  the 
possibility,  and,  in  view  of  recent  developments,  we 
must  say  the  probability,  that  one  or  the  other  party 
will  suffer  loss  through  variations  in  the  value  of  the 
precious  metals.  Not  to  speak  of  the  great  changes  pro- 
duced between  1570  and  1640  by  the  influx  of  silver 
from  the  mines  of  America,  Prof.  Jevons  estimates  that 
the  value  of  gold  fell,  between  1789  and  1809,  46  per 
cent.;  from  1809  to  1849  it  rose  145  per  cent.;  while  be- 
tween 1849  and  1874  it  fell  again  at  least  20  per  cent. 
Even  if  we  allow  largely  for  the  insufficiency  and  inac- 
curacy of  the  data  used  in  such  computations,  there 

1  The  reader  will  recall  Pro!  Jevons's  statement  that  the  several 
Money-functions  are  not  necessarily  united  in  one  substance. 


PRODUCTION  OF  THE  PRECIOUS  METALS.     159 

would  remain   an  unquestionable   variation,    of  wide 
reach,  within  each  of  the  periods  indicated. 

These  extensive  changes  in  the  value  of  the  precious 
metals  have  given  rise  to  the  question,  whether  some- 
thing may  not  advantageously  be  substituted  for  them 
in  payments  protracted  through  considerable  periods 
of  time.  To  a  certain  limited  extent  such  a  substitute, 
where  lands  are  to  be  leased,  has  been  found  in  corn- 
rents.  Locke  advanced  this  idea  in  his  paper  on  the 
"Value  of  Money."  "Wheat  in  this  part  of  the  world, 
and  that  grain  which  is  the  constant  general  food  of 
any  other  country,  is  the  fittest  measure  to  judge  of  the 
altered  value  of  things,  in  any  long  tract  of  time."  Mr. 
Homer,  in  his  speech  during  the  bullion  debates,  de- 
clared that  "Bread-corn  is  the  paramount  and  real 
standard  of  all  values."  "We  are  forced  to  admit," 
says  Prof.  Jevons,  "  that  the  statesmen  of  Queen  Eliza- 
beth were  far-seeing  when  they  passed  the  act  which 
obliged  the  colleges  of  Oxford,  Cambridge  and  Eton 
to  lease  their  lands  for  corn-rents.  The  result  has  been 
to  make  those  colleges  far  richer  than  they  would  other- 
wise have  been,  the  rents  and  endowments  expressed 
in  money  having  sunk  to  a  fraction  of  their  ancient  value." 

A  TABULAE  STANDAED  FOE  DEFEEKED  PAYMENTS. 

Prof.  Jevons,  in  his  excellent  work  on  Money,  so  fre- 
quently cited  in  this  treatise,  has  re-opened  the  ques- 
tion, "  whether  the  progress  of  economical  and  statistical 
science  might  not  enable  us  to  devise  some  better  stand- 
ard of  value?"  "We  have  seen,"  he  says,  "that  the  so- 
called  double-standard  system  of  money  spreads  the 
fluctuations  of  supply  and  demand  of  gold  and  silver 
over  a  large  area,  and  maintains  both  metals  more  un- 


160  MONEY. 

changed  in  value  than  they  would  otherwise  be.  Can 
we  not  conceive  a  multiple  legal  tender  which  would 
be  still  less  liable  to  variation?  We  estimate  the  value 
of  one  hundred  pounds  by  the  quantities  of  corn,  beef, 
potatoes,  coal,  timber,  iron,  tea,  coffee,  beer,  and  other 
principal  commodities,  which  it  will  purchase  from  time 
to  time ;  might  we  not  invent  a  legal-tender  note  which 
should  be  convertible,  not  into  any  single  commodity, 
but  into  an  aggregate  of  small  quantities  of  various 
commodities,  the  quantities  and  qualities  of  each  being 
rigorously  defined?" 

Prof.  Jevons  sees  that  a  bill-of-goods  would  be  an  im- 
possible medium  of  exchange.  "This  scheme  would 
therefore  resolve  itself  into  that  which  has  long  since 
been  brought  forward  under  the  title  of  the  Tabular 
Standard  of  Value."  In  other  words,  such  a  multiple  le- 
gal tender  would  only  be  applied  to  correct  the  single 
failing  of  gold  and  silver  as  money,  viz.,  in  the  function 
of  a  standard  for  deferred  payments. .  After  referring  to 
the  schemes  proposed1  by  Messrs.  Joseph  Lowe  (1822) 
and  Poulett  Scrope  (1833),  Prof.  Jevons  proceeds  to 
say : — "  Such  schemes  for  a  tabular  or  average  standard 
of  value  appear  to  be  perfectly  sound  and  highly  valu- 
able in  a  theoretical  point  of  view,  and  the  practical  diffi- 
culties are  not  of  a  serious  character.  To  carry  Lowe's 

( 

1  There  is  a  considerable  body  of  literature  on  this  point.  Mr. 
Horton  [Silver  and  Gold,  p.  157]  appends  the  following  note  by  Dr. 
Karl  Walcker:  "  Further  progress  in  this  direction  is  merely  a  ques- 
tion of  time.  Count  Soden,  Roscher,  and  Schaffle  have  rightly 
recommended  Mixed  Eents,  reckoned  by  the  values  of  the  precious 
metals,  breadstuffs  and  cloths,  and  the  writer,  (Dr.  Walcker)  has  pro- 
posed that  the  state  should  make  obligations  expressed  in  these 
terms.  .  .  .  Soden's  idea  is  applicable  only  to  taxes,  salaries, 
state  obligations,  and  perhaps  for  purchase-money  of  real  estate,  etc." 


PRODUCTION  OF  THE  PRECIOUS  METALS.     161 

and  Scrope's  plans  into  effect,  a  permanent  government 
commission  would  have  to  be  created,  and  endowed 
with  a  kind  of  judicial  power.  The  officers  of  the  de- 
partment would  collect  the  current  prices  of  commod- 
ities in  all  the  principal  markets  of  the  kingdom,  and 
by  a  well-defined  system  of  calculations  would  compute 
from  those  data  the  average  variations  in  the  purchas- 
ing power  of  gold.  The  decisions  of  the  commission 
would  be  published  monthly  and  payments  would  be 
adjusted  in  accordance  with  them." 

The  first  thought  on  reading  these  words  of  Prof. 
Jevons  is,  that  such  a  scheme  would  "  never  do  for 
Yankees."  Yet  I  am  not  sure  that  even  the  desultory 
and  peremptory  genius  of  our  people  would  offer  a  fatal 
objection  to  a  system  which  should  place  under  special 
safeguards,  like  those  proposed,  the  property  of  char- 
itable institutions,  trust-funds  of  whatever  description, 
the  estates  of  widows  and  of  persons  retired  from  busi- 
ness. Certainly,  as  Prof.  Jevons  says,  "  such  a  standard 
would  add  a  wholly  new  degree  of  stability  to  social  re- 
lations, securing  the  fixed  income  of  individuals  and 
public  institutions  from  the  depreciation  which  they 
have  often  suffered."  But  that  this  author's  suggestion 
of  the  application  of  a  tabular  standard  to  the  payment 
of  debts  of  more  than  three  months'  standing,  even  ordi- 
nary commercial  debts,  would  be  practicable,  I  cannot 
believe.  Commerce  must  do  the  best  it  can  with  the  use 
of  money  and  of  credit  expressed  in  terms  of  money. 
Business  men  must  protect  themselves,  trusting  to  make 
good  their  losses  by  fresh  efforts,  or  by  a  turn  in  values. 
They  are  in  the  way  of  doing  so.  The  only  plea  which 
would  justify  the  erection  of  cumbrous  machinery  for 
determining  the  value  of  more  or  less  permanent  charges, 
in  the  case  of  the  classes  first  referred  to,  is  that  they 


162  MONEY. 

are  not  in  the  way  of  repairing  losses ;  that  the  full  ef- 
fects of  a  depreciation  of  the  standard  for  deferred  pay- 
ments fall  upon  them  and  remain  without  relief. 

Nor  would  commerce  tolerate  such  obstruction.  It  is 
true  that,  as  Prof.  Jevons  claims,1  purely  speculative  en- 
terprises would  be  in  §r  degree  discouraged;  but  it  is 
3ertain  that  legitimate  enterprise  would  be  hampered. 
It  is  true  that  bankruptcies  would,  to  a  certain  extent, 
be  avoided;  but  the  same  might  be  effected  by  any 
cause  which  should  induce  a  slower  rate  of  movement 
in  production  and  trade.  Nothing  is  more  characteristic 
of  the  commercial  spirit  than  the  disposition  to  take  the 
evil  with  the  good,  roughly  to  strike  the  average  of  gain 
and  loss,  to  charge-off  bad  debts,  looking  always  to  the 
future  and  never  regretting  the  past.  This  spirit  leads, 
doubtless,  into  many  errors;  but  it  is  the  life  of  the 
world  of  commerce.  For  one,  I  cannot  believe  that  mer- 
chants and  manufacturers  will  ever  gfubmit  to  a  mode  of 
computation  which  would  render  it  impossible  to  cast  up 
rapidly  and  decisively,  at  any  moment,  the  results  of  a 
venture  ;  but  would  require  every  note  given  or  taken  in 
the  course  of  business  to  be  liquidated  like  a  bankrupt's 
estate. 

But  in  the  case  of  those  who  have  definitively  retired 
from  active  life,  carrying  out  with  them  all  they  will 
ever  have  to  support  old  age  and  provide  for  their  chil- 
dren ;  in  the  case  of  trustees  and  guardians,  under  a  sol- 
emn responsibility  in  the  care  of  estates,  where  loss  is 

1  "  Speculations  based  upon  the  frequent  oscillations  of  prices  which 
take  place  in  the  present  state  of  commerce,  would  be  to  a  certain 
extent  discouraged.  The  calculations  of  merchants  would  be  less 
frequently  frustrated  by  causes  beyond  their  own  control,  and  many 
bankruptcies  would  be  prevented." — [Money  and  the  Mechanism  of 
Exchange,  p.  333.] 


PRODUCTION  OF  THE  PRECIOUS  METALS.      163 

more  to  be  dreaded  than  gain  to  be  desired  ;  in  the  case 
of  institutions  whose  funds  are  sequestered  for  chari- 
table uses  from  the  stock  of  active  capital,  this  objec- 
tion does  not  lie  against  the  scheme  of  a  multiple  legal 
tender,  which  might  also,  perhaps,  be  extended  to  the 
cases  of  loans  by  savings  banks  and  of  loans  to  govern- 
ments and  corporations. 


CHAPTEE  IX. 

COINAGE. 

UNDEK  Coinage,  as  a  title  in  the  theory  and  history 
of  money,  we  may  properly,  without  reference  to  the 
etymology  of  the  word,  take  account  of  all  methods  of 
determining,  for  easy  popular  recognition,  the  quantity 
and  quality  of  individual  portions  of  that  which  has 
been  adopted  into  use  as  money.  Some  historical  forms 
of  money,  however,  have  not  required  any  such  mode 
of  determination,  the  divisions  being  natural,  and  the 
individual  portions  passing  simply  by  tale.  The  shells 
and  red  feathers  used  in  the  islands  of  the  Indian  Ocean, 
the  cattle  and  sheep  used  by  the  early  Greeks  and 
Romans,  needed  only  to  be  counted.1 

Coinage,  in  the  sense  here  given  it,  embraces  more 
than  the  operations  of  the  modern  mint.  Historically 
the  first  achievement  in  this  direction  was  the  establish- 
ment of  a  customary  or  legal  form  to  be  given  to  individ- 
ual portions  of  what  was  to  serve  as  money.  Thus  the 
Abyssinians,  who  used  rock  salt2  as  money,  had  it  cut 

1  Speaking  of  the  early  Mexicans,  the  historian  Prescott  says: 
"  In  their  dealings  it  is  singular  that  they  should  have  had  no  knowl- 
edge of  scales  and  weights.  The  quantity  was  determined  by  meas- 
ure and  number." — [Conquest  of  Mexico,  ii,  140.] 

3  Poucet,  in  his  "Voyage  to  Ethiopia,"  says:  "They  make  use  of 
rock  salt  for  small  money.  It  is  as  white  as  snow  and  as  hard  as  a 


COINAGE.  165 

into  bricks  of  uniform  dimensions,  any  considerable  de- 
parture from  which  would  be  easily  detected  by  the  eye. 

"The  first  species  of  metal  money,"  says  Mr.  Knight,1 
"  that  was  circulated  by  tale,  and  not  by  weight,  of  which 
we  have  any  account,  consisted  of  spikes,  or  small  obe- 
lisks, of  brass  or  iron,  which  were  symbols  of  great 
sanctity  and  high  authority." 

"  Six  of  these  being  as  many  as  the  hand  could  con- 
veniently grasp,  the  word  obolus  and  drachma,  signifying 
spike  and  handful,  continued,  after  the  invention  of 
coining,  to  be  employed  in  expressing  the  respective 
values  of  two  pieces  of  money,  the  one  of  which  was 
worth  six  of  the  other." 

Another  early  form  of  coinage,  in  the  larger  sense  in 
which  we  here  use  the  term,  was  that  of  Ring-money, 
which  is  reported  to  be  still  in  actual  use  in  Nubia,2 
and  which  once  had  circulation,  not  only  throughout 
Egypt  and  Ethiopia,  but  as  it  would  seem,  in  many  dis- 
tant countries.  The  disinterment  in  Ireland  of  large 
amounts  of  this  money  during  the  present  century  has 
been  made  use  of  by  writers  of  a  certain  school  as 
affording  additional  evidence  connecting  the  Irish  with 
the  Phenicians.  These  rings,  so  called,  were  not  al- 
ways or  generally  welded ;  but  were  adapted  to  be  con- 
nected in  the  form  of  a  chain,  which  could  thus  be 
lengthened  or  shortened  according  to  the  financial  con- 
dition of  the  owner. 

rock.  They  dig  it  out  of  the  mountain  Softa,  and  carry  it  into  the 
Emperor's  magazines,  where  they  form  it  into  bars  which  they  call 
amouli,  or  into  half-bars,  which  they  call  courman.  Each  bar  is  a 
foot  in  length,  and  three  inches  in  breadth  and  thickness." 

1  Enquiry  into  the  Symbolical  Language  of  Ancient  Mythology. 

2  Address  of  Dr.  John  Lee,    President,  Numismatic   Society   of 
England,  1837-8. 

14* 


166  MONET. 

Rings  known  in  the  trade  as  Manillae,  have  been,  dur- 
ing this  century,  extensively  manufactured  at  Birming- 
ham (for  a  long  time  the  seat  of  the  counterfeiting  en- 
terprise of  Great  Britain),  for  export  to  the  coast  of 
Calabar,  in  shape  closely  resembling  the  ring-money 
found  during  the  same  period  in  Ireland,  after  an  inhu- 
mation of  centuries. 

The  Cash,1  so  called,  of  Cochin  China  and  China, 
conforms  somewhat  to  the  same  idea.  It  is  described 
by  Milburn,  in  his  "Oriental  Commerce,"  as  composed 
chiefly  of  tutenage  (denned  by  Webster  as  Chinese 
copper,  an  alloy  of  copper,  zinc  and  nickel),  600  pieces 
making  a  quan.  This  is  divided  into  10  mace,  of  60 
"cash"  each,  the  whole  being  strung  together  and  divid- 
ed by  a  knot  at  each  mace.  "There  is  nothing  better," 
Milburn  remarks,  "  and  scarce  anything  else  that  will 
do  to  carry  to  Cochin  China,  than  tutenage,  which  the 
king  always  engrosses  to  himself." — [P.  442.] 

Another  early  form  of  coinage  was  found  in  the  sealed 
bags  of  gold  dust  which  passed  without  examination 
as  to  quantity  or  quality  in  exchange  between  persons 
of  repute.  The  bags  of  money  mentioned  in  the  Script- 
ure, in  the  episode  of  Naaman  and  Gehazi,  may  have 
been  of  this  character.  On  the  same  principle,  quills 
of  gold-dust  are  mentioned  by  Prescott  as  in  use  among 
the  early  Mexicans,  and  the  like  are  still  current  upon 
the  coast  of  Africa. 

Just  when  and  where  the  later  and  now  universal 
form  of  coinage,  viz.,  the  impress  upon  pieces  of  metal 
of  signs  expressive  of  their  weight  and  fineness,  first 
appeared,  historians  are  not  wholly  agreed. 

The  invention  has  been  claimed  severally,  for  Erich- 

1  The  most  important  lillon  in  the  world. — [Chevalier,  La  Mon- 
naie,  p.  768.] 


COINAGE.  167 

thonius,  the  two-faced  Janus,  and  Theseus,  but  these 
characters  or  their  present  legal  representatives  may 
well  be  content  to  relinquish  the  honor,  having  good 
reason  to  be  more  than  satisfied  if  they  escape  with 
their  historical  existence  from  the  rage  of  modern 
investigation. 

To  Pheidon,  king  of  Argos,  is  generally  attributed 
the  first  coinage  of  the  modern  form.  He  is  reported 
to  have  stamped  both  copper  and  silver  money  in  the 
Island  of  .ZEgina,  in  order  to  facilitate  commerce ;  and 
upon  the  respectable  authority  of  Mr.  Grote1  we  may 
rest  comfortably  upon  this  as  the  true  account  of  this 
great  invention. 

It  is  in  their  adaptation  to  coinage  that  the  metals 
possess  one  of  their  most  important  advantages  for  use 
as  money.  Articles  passing  by  tale  will  generally  be 
found  to  vary  not  a  little  in  quantity  or  quality,  generat- 
ing controversies  which  will  do  much  to  retard  their  cir- 
culation as  money,  and  inducing  the  picking  or  selecting 
of  the  better  specimens ;  but  it  is  within  the  capabilities 
of  modern  art  to  make  the  quantity  and  quality  of  the 
metal  contained  in  coins  of  the  same  mintage  so  nearly 
alike  that  no  selfish  interest  could  be  served  by  making 
choice  between  any  two  of  them  that  may  be  offered. 

The  metals,  however,  differ  not  a  little  among  them- 
selves in  the  ease  and  the  completeness  with  which  this 
result  can  be  effected ;  and  it  is  in  this  respect  that  sil- 
ver and  gold,  especially  the  latter,  exhibit  their  most 
marked  adaptation  to  use  as  money.  "  Platinum,"  says 
Mr.  Babbage,2  "  cannot  be  melted  in  our  furnaces,  and  is 
chiefly  valuable  in  commerce  when  in  the  shape  of  in- 

1  History  of  Greece,  iii,  318. 
9  Economy  of  Manufactures,  p.  121. 


168  MONET. 

gots,  from  whicli  it  may  be  forged  into  useful  forms. 
But  when  a  piece  of  platinum  is  cut  into  two  parts,  it 
cannot  easily  be  re-united  except  by  means  of  a  chem- 
ical process  in  which  both  parts  are  dissolved  in  an 
acid.  Hence  when  platinum  coin  is  too  abundant,  it 
cannot,  like  gold,  be  reduced  into  masses  by  melting, 
but  must  pass  through  an  expensive  process  to  render 
it  useful."  Notwithstanding  this  want  of  adaptation  to 
the  purposes  of  coinage,  the  Kussian  government  at- 
tempted the  circulation  of  platinum  money  in  1828,  but 
after  a  conclusive  experience,  relinquished  the  effort  in 
1845.1 

In  all  lands  coinage  has  been  one  of  the  most  cher- 
ished prerogatives  of  sovereignty.  This,  however,  in 
England,  at  least,  only  extended  to  the  coinage  of  gold 
and  silver.  Mr.  Toumlin  Smith,  a  high  authority,  cites 
the  declaration  of  Lord  Coke  that  the  king  of  England 
"  hath  no  prerogative  in  any  other  metal  than  gold  and 
silver ; " 2  and  refers  to  Boyne's  book  on  the  "Tokens  of 
the  Seventeenth  Century,"  for  a  list  of  nine  thousand 
four  hundred  and  sixty-six  different  sorts  of  copper 
coin,3  issued  with  different  devices  and  by  different  peo- 

1  An  account  of  the  platinum  coinage  of  Russia  is  found  in  Chev- 
alier's "  La  Monnaie,"  sect,  vi,  chap.  3. 

a  According  to  the  decisions  of  Lord  Coke,  Sir  Matthew  Hale,  and 
other  jurists,  money,  to  be  covered  by  the  king's  prerogative,  must 
le  of  gold  or  silver.  "  Money  isNjtiat  metal,  be  it  gold  or  silver,  which 
receives  authority  by  the  prince's  impress  to  be  current;  for,  as  wax 
is  not  a  seal  without  a  print,  so  metal  is  not  money  without  the  im- 
pression."— [Coke's  Littleton.] 

8  "  By  all  that  I  can  discover,  the  copper  coins  of  Ireland  for  three 
hundred  years  past  consisted  of  small  pence  and  half-pence  which 
particular  men  had  license  to  coin,  and  were  current  only  within 
certain  towns  and  districts,  according  to  the  personal  credit  of  the 
owner  who  uttered  them,  and  was  bound  to  receive  them  again." — 
[Swift,  Drapier's  letters.] 


COINAGE.  169 

pie,  these  being  but  a  part  of  those  actually  issued. 
Private  issues  of  copper  coin  were  indeed  not  prohibit- 
ed until  the  Act  of  57  George  III  (c.  46),  and  then  not 
on  the  ground  of  prerogative,  but  for  the  public  conven- 
ience. 

fro  subjects,  says  Hallam,1  ever  enjoyed  the  right  of 
coining  silver  in  England  without  the  royal  stamp  and 
superintendence.2  "I  do  not,"  he  adds,  "extend  this  to 
the  fact,  for  in  the  anarchy  of  Stephen's  reign,  both 
bishops  and  barons  coined  money  for  themselves." 

In  France  the  prerogative  of  the  king  was  not  seldom 
surrendered  to  the  great  vassals,3  through  fear,  or  sold 
through  cupidity. 

Of  India  Dr.  Hunter  writes : 4 

"One  of  the  most  cherished  insignia  of  sovereignty 
was  the  striking  of  coin;  and  little  potentates  who,  in 
every  other  respect,  acknowledged  allegiance  to  Delhi, 
maintained  their  independent  right  of  coining.  As  it 
was  the  last  privilege  to  which  fallen  dynasties  clung,  so 
it  was  the  first  to  which  adventurers  rising  into  power 
aspired.  While  the  Mahrattas  were  still  mountain  rob- 
bers, they  set  up  a  mint;  and  in  1685  the  East  India 
Company,  at  a  period  when  it  had  only*  a  few  houses 
and  gardens  in  Bengal,  intrigued  for  the  dignity  of 
striking  its  own  coin." 


1  Middle  Ages,  i,  204. 

a  Mr.  Jacob  enumerates  thirty-eight  Mints  in  England  in  1017, 
A.D.  In  the  reign  of  Henry  VI  there  were  only  eight;  under  Henry 
VIII  but  four.  During  and  after  the  reign  of  Elizabeth,  all  coins 
were  struck  in  London. 

*  Silver  and  even  gold  were  coined  by  the  Dukes  of  Brittany,  so 
long  as  that  fief  continued  to  exist. 

4  Annals  of  Rural  Bengal,  p.  299. 


170  MONEY. 

In  our  further  course  I  shall  use  the  word  coinage 
in  its  ordinary  sense,  as  relating  only  to  the  operations 
of  the  mint,  in  the  modern  form  of  determining  the 
quantity  and  quality  of  individual  portions  of  the  met- 
als used  as  money. 

The  progress  of  the  a»t  of  coinage  was  very  slow,  for 
the  chemical  and  mechanical  difficulties  to  be  encoun- 
tered were  of  the  most  serious  nature. 

At  first  coins  were  impressed1  only  upon  one  side. 

1  Mr.  Knight,  in  his  work  on  the  "  Symbolical  Language  of  Ancient 
Mythology,"  says :  "  In  examining  the  symbols  in  the  remains  of 
ancient  art  which  have  escaped  the  barbarism  and  the  bigotry  of  the 
Middle  Ages,  we  may  sometimes  find  it  difficult  to  distinguish  be- 
tween those  compositions  which  are  mere  efforts  of  taste  and  fancy, 
and  those  which  were  emblems  of  what  were  thought  divine  truths. 
There  is  one  class,  however,  the  most  numerous  and  important  of  all, 
which  must  have  been  designed  and  executed  under  the  sanction  of 
public  authority,  and,  therefore,  whatever  meaning  they  contain 
must  have  been  the  meaning  of  nations  and  not  the  caprice  of  indi- 
viduals. 

"This  is  the  class  of  Coins ;  the  devices  upon  which  were  always 
held  so  strictly  sacred  that  the  most  proud  and  powerful  monarchs 
never  ventured  to  put  their  portraits  upon  them  until  the  practice 
of  deifying  sovereigns  had  enrolled  them  among  the  gods.  Neither 
the  kings  of  Persia,  Macedonia,  or  Epirus,  nor  even  the  tyrants  of 
Sicily  ever  took  this  liberty,  the  first  portraits  that  we  find  upon 
money  being  those  of  the  Egyptian  and  Syrian  dynasties  of  Mace- 
donian princes,  whom  the  flattery  of  their  subjects  had  raised  to 
divine  honors.  The  artists  had,  indeed,  before  found  a  way  of  grat- 
ifying the  vanity  of  their  patrons  without  offending  their  piety, 
which  was  by  mixing  their  features  with  those  of  the  deity  whose 
image  was  to  be  impressed;  an  artifice  which  seems  to  have  been 
practiced  in  the  coins  of  several  of  the  Macedonian  kings  previous 
to  the  custom  of  putting  their  portraits  upon  them. 

"  It  is  in  a  great  degree  owing  to  the  sanctity  of  the  devices  that 
such  numbers  of  very  ancient  coin  have  been  preserved  fresh  and 
entire." 


COINAGE.  171 

Milburn  in  his  work  on  Oriental  Commerce,  already  re- 
ferred to,  states  that  the  "gall,"  a  small  piece  of  silver 
worth  about  fourpence,  which  forms  the  only  native  coin 
of  Cochin  China,  has  characters  only  upon  one  side. 
Manifestly,  this  incomplete  form  of  coinage  allowed  the 
metal  to  be  taken  largely  from  the  under  side,  and 
hence  led  to  the  extensive  corruption  of  the  money  in 
circulation. 

1  Even  when,  at  a  later  period,  the  coin  was  protected 
on  both  its  sides  by  the  impressions  of  the  mint,  its 
proper  area  remained  undefined,  allowing  the  edges  to 
be  clipped  to  an  extent  which,  without  impairing  the 
integrity  of  the  central  device,  might  abstract  a  quarter 
or  a  third  of  the  metal  originally  contained.  Mr.  Seyd 
states1  that  the  coin  of  Persia  at  present  consists  of 
rough  and  irregular  pieces,  so  largely  clipped  that  the 
Tomans,  coins  corresponding  to  the  European  ducat, 
usually  pass  by  weight,  and  not  by  tale. 

"Little  skill  and  less  taste,"  says  Mr.  Jacob,  "were 
shown  in  the  coinage  of  the  Middle  Ages."  Time  will 
not  allow  us  to  trace  step  by  step  the  progress2  in  the 
art  of  coining,  by  which  the  rude  pieces  of  an-  earlier 

"  Prasterea  in  quibusclam  nummis  inscribitur  nomen  dei,  vel  alicu- 
jus  sancti,  et  signum  crucis;  quod  fuit  inventum  et  antiquitus  institu- 
tum  in  testimonium  veritatis  monetae  in  materia  et  pondere.  Si  igitur 
Princeps  sub  ista  inscriptione  immutet  materiam  sive  pondus,  ipse 
videtur  tacite  mendacium  et  perjurium  committere,  et  falsum  testi- 
monium perhibere,  ac  etiam  praevaricator  fieri  illius  prsecepti  legalis 
quo  dicitur:  Non  assumes' nomen  dei  tui  in  vanum." — [N.  Oresme,  de 
origine,  etc.,  Monetarum.] 

1  Bullion  and  Foreign  Exchanges,  p.  364. 

3  According  to  Sir  James  Steuart  it  was  about  the  time  of  the 
Revolution  that  the  custom  of  weighing  the  current  money  went 
into  disuse  in  England,  owing  to  the  introduction  of  the  wheel  or 
fly-press. 


172  MONEY. 

age  have  been  replaced  by  the  exquisite  productions  of 
the  modern  mint.  To  this  progress  no  nation  has  con- 
tributed more  than  the  French.  Two  of  the  greatest 
inventions  in  the  history  of  the  art,  the  mill  and  the 
screw,  and  the  steam  coining-press,  the  world  owes  to 
that  people.1 

It  is  a  just  subject  of  pride  to  Americans  that  the 
Mint  of  the  United  States2  is  recognized,  the  world  over, 

1  [Snowden  on  Coins,  xv.]  In  the  light  of  this  fact  Prof.  Rogers's 
remark  reads  somewhat  strangely.  "  I  have  been  unable  to  find  out 
any  instance  of  mechanical  genius  in  any  other  race  but  our  own, 
except  the  solitary  discovery  of  the  carding-machine.  This,  beyond 
doubt  a  great  invention,  though  it  consists  like  all  great  inventions  in 
a  simple  and  obvious  principle,  was  discovered  by  a  Frenchman. 
.  .  .  But  I  have  found  no  other  notable  invention  for  saving 
human  labor  which  is  not  the  offspring  of  Anglo-Saxon  thought." — 
[Historical  Gleanings,  i,  144.] 

3  An  account  of  American  Coinage  will  be  found  in  articles  by 
Mr.  J.  H.  Hickok,  in  the  "N.  Y.  Banker's  Magazine  "  for  October  and 
.November,  1861. 

The  first  colonial  Mint  was  established  in  Massachusetts  in  1652, 
during  the  period  of  the  Commonwealth,  shillings  and  sixpences 
being  issued  in  large  amounts.  After  the  Restoration  further  coinage 
was  forbidden,  as  an  invasion  of  the  rights  of  the  crown.  It  is  stated 
that  the  Mint  continued  to  coin  under  the  original  date,  1652.  Vir- 
giniaj  by  law,  instituted  a  Mint  in  1645,  and  Maryland  in  1661 ;  but 
both  schemes  proved  futile.  Some  brass  or  copper  pieces  were 
struck,  prior  to  the  Revolution,  in  Carolina  and  Virginia.  An  at- 
tempt to  extend  the  circulation  of  Wood's  famous  pence  into  the 
American  Colonies  failed,  though  specimens  are  found  as  far  south  as 
Carolina.  During  the  Confederation  the  right  of  coining  was  vested 
in  the  individual  states  as  well  as  in  the  federal  government.  By 
the  constitution,  Congress  has  sole  power  to  regulate  coinage,  as  well 
as  to  control  the  circulation  of  foreign  moneys.  -The  most  important 
coinage  laws  of  the  United  States  are  those  of  1792,  1834,  1837, 
1853  and  1873,  all  of  which  will  be  referred  to  in  the  course  of  these 
discussions. 


COINAGE.  173 

as  of  highly  exceptional  authority.  "  There  can  be  no 
doubt,"  says  Mr.  Seyd,  "that  the  United  States  gold 
coin  is,  as  a  rule,  superior  to  all  others  except  that  of 
Kussia."1 

Three  gold  coins,  ihe  Kussian  imperials,  the  French 
Napoleons,  and  the  United  States  Eagles,-  are  bought, 
without  remelting,  by  the  Bank  of  England. 

On  the  other  hand,  Mr.  Seyd  takes  a  very  unfavora- 
ble view  of  the  British  mint,  as  to  both  its  mechanical 
arrangements  and  its  official  administration ;  and  I  note 
that  Prof.  Jevons2  gives  his  sanction  to  Mr.  Seyd's  view. 

"  The  British  Mint  still  enjoys  the  Remedy  of  about 
2y  per  mille  for  weight  and  of  about  3  per  mille  for 
fineness.  This  may  have  been  all  very  well  and  equi- 
table in  olden  times,  when  science  had  not  yet  attained 
its  present  high  state  of  development :  but  the  progress 
which  has  been  made  since  then  ought  surely  to  entitle 
the  public  to  demand  that  the  Remedy  should  be  re- 
stricted now  within  closer  limits."— [Bullion  and  For- 
eign Exchanges,  p.  556.] 

A  very  striking  admission,  as  it  would  seem  to  be,  of 
this  imperfection  of  the  British  mint  operations,  was  un- 
til recently  found  in  the  refusal  of  the  mint  authorities  to 
take  cut3  sovereigns  by  weight  as  standard  gold;  in- 
stead of  which,  the  Bank  of  England  paid  only  77.6-^d. 
per  oz.,  or  about  four-ninths  per  cent,  off  the  mint  value 
(77.10-jdL).  Mr.  Seyd  also  alleges  that  jewelers  in  Lon- 

1  The  Russian  half-imperial,  22  carats  fine,  which  has  no  remedy  as 
to  fineness,  Mr.  Seyd  regards  as  the  most  regular  coin  known  to  com- 
merce ;    but  I  do  not  understand  him  as  giving  preference  to  the 
body  of  Russian  gold  coin  over  that  of  the  United  States. 

2  Money  and  the  Mechanism  of  Exchange,  pp.  120-1. 

8  That  is,  sovereigns  which  have  been  stamped  as  below  the  weight 
required  for  circulation. 


174  MONEY. 

don  are  accustomed  to  add  six  grains  of  fine  gold  to  ev- 
ery oz.  of  standard l  gold,  in  order  to  insure  their  prod- 
ucts passing  Goldsmith's  Hall. 

It  is,  not  improbably,  in  consequence  of  Mr.  Seyd's 
vigorous  attack  on  the  management  of  the  Mint,  in  his 
book,  published  in  1868,  that  the  authorities,  as  we 
learn  from  the  fourth  edition  of  Mr.  Nicholson's  work 
on  the  "Science  of  Exchanges,"  published  in  1873,  now 
receive  light  gold  coin  at  77.10^-c?.  per  oz.  from  the  Bank 
of  England,  which  pays  the  holder  at  the  rate  of  77.9c?., 
the  same  as  for  bullion. 


The  problem  with  which  the  mint  has  to  deal  is  not 
mechanical  merely,  but  also  chemical. 

To  make  a  coin  absolutely  pure  is  perhaps  possible, 
but  it  could  be  effected  only  by  a  great  expenditure  of 
labor.  To  bring  gold  or  silver  to  a  fineness  of  995  or 
996  parts  in  1000  is  easily  accomplished  by  the  •  refiner, 
but  to  exclude  each  of  the  remaining  thousandths  of 
impurity  would  require  an  amount  of  skill  and  time 
increasing  as  absolute  purity  were  approached.  Hence 
a  certain  toleration  of  impurity  is  required  by  practical 
considerations.  But  beyond  this,  it  is  seen  that  the  ad- 
dition of  inferior  metals  has  the  effect  to  harden  coin 
and  thus  diminish  the  loss  by  abrasion  in  use.  To  secure 
this  desirable  result,  alloys  in  definite  quantity  are  pur- 
posely introduced. 

The  earlier  gold  coins  were  generally  finer  than  those 
of  the  present  time.  The  Persian  coin  known  as  the 
Daric,  from  King  Darius,  was  of  a  very  high  degree  of 

1  Fine  gold  is  the  technical  term  for  gold  absolutely  pure.  Stand- 
ard gold  is  gold  mingled  with  alloy  according  to  the  legal  standard 
of  coinage,  which  in  England  is  11  parts  fine  gold  to  1  of  alloy  j 
while  in  the  United  States  it  is  9  parts  fine  gold  to  1  of  alloy. 


ALLOY  IN  COIN.  175 

purity,  perhaps  as  great  as  could  be  attained  by  the 
artisans  of  that  day ;  and  it  was  in  consequence  of  the 
reputation  of  this  coin  that  the  name  "Daric"  came  in 
later  times  to  be  affixed  to  coins  of  any  mintage  which 
were  exceptionally  pure,  just  as,  at  a  later  period,  the 
sovereigns  of  many  countries  coined  Bezants,  in  imita- 
tion of  the  famous  coin  first  so  called  because  issued 
from  Byzantium. 

Egypt  had  for  a  long  time  no  native  coin,  and  the 
pieces  celebrated  for  their  purity  under  the  name  of 
Aryandics  were  of  Persian  mintage.  The  coins  of  the 
successors  of  Alexander  in  Egypt,  contained  23  carats, 
3  grains  of  gold,  having  but  one  grain  of  alloy.  Bodin, 
as  quoted  by  Pinkerton,  informs  us  that  the  goldsmiths 
in  Paris  in  assaying  some  gold  coins  of  Vespasian,  found 
in  them  no  more  than  ~T\~S  part  of  alloy. 

"It  does  not  appear,"  says  Mr.  Jacob,  "that  the  same 
degree  of  purity  was  preserved  in  the  silver  coined  by 
the  ancients." 

Just  what  degree  of  fineness  will  best  accomplish  the 
purpose  of  hardening  the  coin,  while  preserving  a  qual- 
ity which  will  allow  it  to  be  kept  clean  and  agreeable 
to  sight  and  touch,  is  a  somewhat  disputed  question. 

The  ratio  most  generally  adopted  in  modern  coinage, 
including  that  of  the  United  States,  is  9  : 1,  yielding,  that 
is,  coins  -£Q  fine.  The  ratio  adopted  by  the  British 
Mint  (covering  the  coinage  of  India)  is  11 : 1,  yielding 
coins  TT  fine.  The  Kussian  half-imperial  is  of  this 
fineness,  as  are  the  gold  coins  of  Brazil.  The  British 
Mint  authorities  strenuously  insist  on  the  ratio  11 : 1  as 
that  best  approved  in  use.  Extensive  experiments  were 
conducted1  between  1798  and  1802,  under  the  most 

1  By  Cavendish  and  Hatchett ;  see  "  Philosophical  Transactions," 
1803. 


176  MONEY. 

careful  observation,  and  the  result  as  it  then  appeared 
is  thus  stated  by  Mr.  Jacob.  "Our  British  standard 
gold1  is  proved  by  them  to  be  less  susceptible  of  loss 
by  abrasion  than  that  of  any  other  of  the  several  king- 
doms of  Europe,  or  than  any  that  is  coined  in  either 
Spanish  or  Portuguese  America."— [P.  292.] 

We  may  conclude  with  Chevalier2  that  the  proportion 
of  one-twelfth  alloy  is  most  efficacious,  and  that  we  owe 
the  general  adoption  of  the  proportion  of  one-tenth  to 
the  general  desire  of  the  nations  to  promote  decimal 
coinage. 

As  has  already 3  been  stated,  in  accounting  for  the 
more  rapid  abrasion  of  the  earlier  coins,  the  nature  of 
the  metals  used  in  alloying  gold  and  silver  is  of  great 
consequence. 

"  If  gold  22  parts  fine  in  24  were  to  have  the  alloy 
formed  of  a  mixture  of  iron  and  tin,  the  loss  by  friction 
would  be  five  times  as  great  as  it  is  with  the  alloy  actur 
ally  used  in  the  British  coinage.  With  alloy  of  copper 
and  tin,  the  loss  would  be  nearly  four  times  as  much." 
—[Jacob,  p.  294] 

Secondly,  it  should  be  noted  that  the  loss  by  abrasion 
depends,  also,  upon  the  surface  exposed.  The  smaller 
the  denomination  of  the  coin,  the  larger,  generally,  the 
exposure.  "  Thus  it  appears  by  the  English  experiment 
of  the  officers  of  the  English  Mint  in  1787,  that  of  the 
silver  coins  then  in  circulation,  the  loss  on  crowns  was, 

1  Gold  coins  were  first  minted  in  England  23  carats,  3^  grains  fine. 
The  Act  of  18  Henry  VJII  introduced  the  new  standard   22 :  2. 
From  that  time  till  1663   both  standards  were  used,  under  different 
denominations.     Since  1663  all  have  been  22 : 2. — [J.  R.  McCulloch'g 
Commercial  Dictionary.] 

2  La  Monnaie,  p.  225. 
8  See  p.  121. 


ALLOY  IN  COIN.  177 

disregarding  fractions,  about  3  per  cent.,  on  half-crowns 
about  10  per  cent.,  on  shillings  24  per  cent.,  and  on  six- 
pences 38  per  cent.  And  by  another  series  of  experi- 
ments made  at  the  Mint  in  1816,  the  loss  on  sovereigns, 
for  the  average  of  five  years,  was  0.726  per  cent.,  and  on 
half-sovereigns,  0.883  per  cent.  On  half-crowns  for  the 
same  average  time,  2.28  per  cent.,  on  shillings  2.88  per 
cent.,  and  on  sixpences  3.26  per  cent. 

"  Agreeably  to  the  experiment  made  at  the  Mint  of  the 
United  States,  on  the  eagle,  half-eagle  and  quarter-eagle, 
the  loss  they  severally  sustained  in  fifty  years  appeared 
to  be  in  the  proportion  of  1,  2,  3,  and  that  sustained  by 
the  dollar,  half-dollar,  quarter,  dime  and  half-dime, 
respectively,  1,  2,  3i,  6,  and  10."  * 

For  a  similar  reason,  with  coins  of  a  given  denomina- 
tion, the  thicker  the  coins  the  less  the  rate  of  loss  by 
wear  in  use. 

The  alloy  ic  needs  to  be  observed  is  never  taken  into 
account  in  computing  the  worth  of  coin.  It  is  only  the 
pure  metal  which  gives  value  in  the  computations  of 
exchange ;  thus,  the  value  of  the  copper  used  to  alloy 
standard  gold  is  less  than  1 I 1 0  o  ?  the  value  of  copper 
used  to  alloy  standard  silver  is  less  than  rio".2  Not 
even  if  the  largest  amount  of  standard  gold  or  silver 
were  to  be  estimated  for,  would  the  copper  be  reckoned, 
that  is,  with  750  shillings  we  should  not  add  one  shilling 
for  the  value  of  the  copper  contained ;  with  11,000  sover- 
eigns, we  should  not  add  one  sovereign  on  a  similar 
account. 

Even  with  respect  to  the  silver  contained  in  the  gold 
coinage,  the  inferior  metal  is  not  accounted  of  value. 
This  has  led,  as  is  alleged,  to  a  practice  of  sending 

1  Tucker  on  Money  and  Banks,  p.  69. 
3  Seyd,  Bullion  and  Foreign  Exchanges,  p.  176. 


178  MONEY. 

British  sovereigns  to  Paris,  where  the  French  refiners, 
working  at  lower  rates  than  those  of  London,  part  the 
metals,  remove  the  silver,  supply  an  equal  alloy  of  cop- 
per, and  return  the  gold  in  ingots  (still  standard, 
22:2)  to  England  to  be  recoined  into  sovereigns.  The 
sovereigns  thus  coined,.  Fsays  Mr.  Jacob,  are  distin- 
guished by  their  deeper  color.  On  the  other  hand,  in 
Australia,  where  refining  is  an  even  more  expensive 
process  than  in  England,  the  sovereigns  frequently  con- 
tain silver  for  their  sole  alloy,  which  gives  them,  says 
Mr.  Seyd,  a  pale  straw-colored  appearance.  Such 
coins  are  likely  in  time  to  fall  into  the  hands  of  English 
or  French  refiners,  who  melt  them  up  for  the  silver 
they  contain. 

But  while  gold  must  contain  a  very  large  proportion  of 
silver  to  make  it  worth  while  to  part  the  metals,  a  very 
small  proportion  of  gold  in  silver,  stated  by  Mr.  Seyd1 
at  1  per  mille,  will  repay  the  expenses  of  refining. 
Mr.  Ward  states  that  the  silver  coined  in  Mexico 
during  the  revolutionary  period,  subsequent  to  1809, 
contained  no  inconsiderable  proportion  of  gold,  which, 
in  the  haste  of -mining  and  coining,  had  not  been  ex- 
tracted. "Many  millions  of  these  dollars,"  he  says,  "in 
the  course  of  circulation  found  their  way  to  Europe, 
where  the  refiners  of  London  and  Paris,  to  their  great 
gain,  soon  separated  the  gold  from  the  silver.  The 
dollars  of  that  description  have  at  length  almost  wholly 
disappeared ;  but  their  melting  has  added  considerably 
to  the  stock  of  gold  in  Europe." 

In  those  periods  of  history  when  frauds  in  coinage 
were  extensively  practiced,  the  exceptionally  good  rep- 
utation of  any  coin  would  naturally  give  it  a  circulation 

1  Bullion  and  Foreign  Exchanges,  p.  181. 


ALLOY  IN  COIN.  179 

in  a  degree  irrespective  of  national  boundaries.1  The 
gold  coins  of  the  Eastern  Empire  known  as  Bezants  had 
a  wide  acceptance  over  western  Europe. 

"  But  a  small  part  of  the  English  circulation  between 
800  and  1500,"  says  Mr.  Jacob,  "was  of  domestic  coin- 
age." The  agnels  of  St.  Louis,  which  were  23^  carats 
fine,  were  brought  back  in  great  numbers  from  the  con- 
quests in  France,  and  long  found  favor  in  the  eyes  of 
the  English.  Lord  Lauderdale,  in  his  "Depreciation 
Proved,"  notes  the  extensive  circulation  of  Portuguese 
moidores  in  the  western  counties  where  they  were  in- 
deed preferred  to  the  national  coin.  The  same  writer 
states  that  not  less  than  £1,400,000  in  Erench  louis 
d'or  were,  in  a  brief  space,  brought  to  the  English  Mint 
to  be  melted,  in  consequence  of  a  proclamation  forbid- 
ding them  to  be  taken  at  more  than  17  shillings. 

In  our  own  day  we  have  seen  the  sovereign2  attain  a 
wide  currency  beyond  the  limits  of  Great  Britain, 
though  perhaps  from  its  high  value  it  has  never  com- 
manded that  almost  boundless  circulation  which  has 
made  the  Spanish  dollar  what  Chevalier  calls  "  an  uni- 
versal coin."  3 

1  "  From  the  year  1797  to  1806  all  foreign  coins,  except  '  Spanish 
milled  dollars  and  parts  thereof,'  ceased  to  be  a  legal  tender  in  the 
United  States ;.  yet  during  that  period  the  gold  coins  of  Great  Britain, 
Portugal,  and  France,  constituted  a  large  part  of  the  metallic  cur- 
rency of  the  United  States."     "  In  like  manner,  from  1809  to  1816, 
foreign  gold  coins  were  no  part  of  the  currency  recftgnized  by  the  law, 
yet  no  one  who  had  them  found  any  difficulty  in  passing  them  at  the 
same  rate  as  the  current  coins  of  the  country,  especially  if  they  were 
such  as  the  public  were  familiar  with." — [Prof.  Tucker,  Money  and 
Banks,  pp.  94-5.] 

2  First  coined  in  1816. 

3  Speaking  of  China,  M.  Chevalier  says:  "A  cote  de  1'idee  bien 
acquise  que  les  metaux  precieux  sont  les  marchandises  et  que  les 


180  MONEY. 

pieces  monriayees,  par  consequent,  ne  doivent  circuler  que  pour  leur 
poids  de  fin,  on  y  observe  ce  fait  etrange  que  le  metal  argent  qui  y 
joue  le  plus  grand  role  dans  les  transactions  du  commerce,  soit  regu 
pour  des  valeurs  fort  differentes,  par  la  seule  raison  de  la  forme,  on, 
pour  parler  plus  exactement,  de  1'empreinte  qu'il  pdrte.  Ainsi  la' 
piastre  espagnole,  la  piastre  a  colonnes  notamment,  y  est  admise  pour 
une  valeur  proportionnellement"  bien  superieure  a  celle  d'autres  mon 
naies  tout  aussi  correctement  fabriquees  et  a  celle  de  1' argent  en  lin- 
got." — [La  Monnaie,  p.  345.] 


CHAPTEB  X. 

SEIGNIORAGE. 

THE  expense  of  rendering  metals  into  coin  has  given 
rise  to  one  of  the  vexed  questions  of  Political  Economy, 
that  of  Seigniorage. 

Shall  the  value  of  the  coin  be  computed  according  to 
the  market  value  of  the  metals  in  the  shape  of  bullion ; 
or  shall  the  cost  of  mintage  be  added  to  the  value  of 
the  metal  taken  for  the  coin? l 

On  the  one  hand,  it  is  urged  that  gold  and  silver  are 
worth  more  in  coin  than  in  bullion ;  that  they  serve  an 
additional  use,  and  thus  give  rise  to  a  new  demand ;  that, 
to  fit  them  for  this  use,  labor  is  required  over  and  above 
what  is  necessary  to  raise  the  metal  from  the  mine  and 
bring  it  into  a  state  of  commercial  purity ;  and  that  the 
cost  of  this  labor  should  appear  in  the  value  of  the 
product. 

It  is  said  that  there  is  no  more  reason  why  gold  in 
coin  should  not  be  valued  higher  than  gold  in  bars,  than 

1  "  Justa  autem  et  equa  monete  estimatio  est,  quando  paulo  minus 
auri  vel  argenti  continet  quam  pro  ipsa  ematur :  utpote  quantum  pro 
expensis  dumtaxat  monetariorum  oportuerit  deduci.  Debet  enim 
signum  ipsi  materie  aliquam  addere  dignitatem." — [Copernicus,  Mo- 
nete Cudende  Ratio.] 

"  Sicut  ipsa  moneta  est  communitatis,  ita  facienda  est  ad  expensas 
communitatis." — [Oresme,  de  origine,  etc.,  Monetarum.] 

16 


182  MONEY. 

there  would  be  for  selling  iron  in  plates,  rivets  and  rods, 
at  the  price  of  iron  in  the  pig ;  and  that,  if  gold  in  coin 
costs  more,  and  is  worth  more,  than  in  ingots,  those  who 
want  the  coin,  and  not  the  entire  community,  should  pay 
for  it. 

On  this  principle,  many  governments  cut  from  the  in- 
gots brought  to  the  mint  enough  of  the  metal  to  pay  the 
charges  of  coinage. 

Again  it  is  urged  that,  in  the  absence  of  such  a  charge, 
a  great  waste  of  labor  will  result,  of  which  no  one  will 
secure  the  benefit,  through  the  unnecessary  melting  down 
of  coin  for  export  as  bullion,  or  manufacture  as  plate. 

If,  it  is  said,  the  amount  of  coined  money  in  any  coun- 
try becomes  superabundant,  the  value,  or  purchasing 
power,  of  each  portion  thereof  will  be  lowered,  and  hence 
a  movement  for  its  exportation  will  begin.  But  a  seign- 
iorage will  put  a  distinct  charge  upon  the  exportation. 
If,  for  example,  out  of  every  100  oz.  of  gold  brought  to 
the  Mint  the  United  States  government  were  to  reserve 
1  oz.  for  the  expenses  of  coinage,  and  give  back  only  99 
oz.  in  the  form  of  coin,  the  holder  would  not  melt  the 
coin  for  export  unless  the  money  of  the  country  were  so 
much  in  excess  that  the  99  oz.  into  which  the  coin  could 
be  melted  would  purchase  more  abroad  (expenses  of 
transportation  included)  than  the  coin  which  now  repre- 
sents the  cost  of  100  oz.  of  gold  will  purchase  here. 
But  if  no  seigniorage  is  charged,  the  exporter  will  indif- 
ferently ship  coin  or  bullion;  and  vast  amounts  will  be 
alternately  coined  and  melted,  at  a  constant  expense,  to 
the  state,  of  machinery  and  labor,  with  no  compensat- 
ing advantage  to  any  portion  of  the  community.  Thus 
free  coinage  becomes,  in  the  language  of  Dudley  North, 
"a  perpetual  motion  found  out,  whereby  to  melt  and 
coin,  without  ceasing,  and  so  to  feed  goldsmiths  and 


SEIGNIORAGE.  183 

coiners  at  the  public  charge."1  In  the  same  way,  man- 
ufacturers of  jewelry  and  plate  will,  under  free  coinage, 
take  coin  and  bullion  indifferently  for  their  purposes.2 
Economists  have  very  generally  been  agreed  in  recom- 
mending that  the  cost  of  mintage  be  charged  upon  the 
coin;  yet  the  most  important  commercial  nation  of  the 
world  exacts  no  seigniorage  upon  its  gold,  or  principal, 
coin.  Adam  Smith  attributes  the  English  law  of  1666 
[18  Charles  II.  c.  5],  establishing  gratuitous  coinage,  to 
the  prevailing  notions  respecting  the  relation  of  money 
to  other  forms  of  wealth,  known  as  the  Mercantile  The- 
ory ; 3  and  its  continuance,  to  the  influence  of  the  Bank. 
The  English  system,  which  has  been  adopted  by  Rus- 
sia and  was  followed  by  the  United  States  until  1853,  is 
not,  however,  wholly  without  a  defense.  Looking,  in 
the  first  instance,  at  the  coinage  of  the  amount  actually 
required  for  domestic  purposes,  it  is  said  that  the  use  of 
money  is  of  general  public  benefit,  as  much  as  the  use  of 
roads,  and  that  the  same  policy  which  abolishes  the  toll- 
gate  (by  which  those  who  actually  travel  upon  the  roads 

1  Dr.  Adam  Smith  says :  "  The  operations  of  the  mint  were,  upon 
this  account,  somewhat  like  the  web  of  Penelope  :  the  work  that 
was  done  in  the  day  was  undone  in  the  night.     The  mint  was  em- 
ployed, not  so  much  in  making  daily  additions  to  the  coin,  as  in 
replacing  the  best  part  of  it,  which  was  daily  melted  down." 

2  In  order  to  meet  this  difficulty,  Prof.  Storch,  the  Eussian  econ- 
omist, proposes  that  a  higher  standard  for  gold  and  silver  plate  be 
established  than  for  coins,  so  as  to  compel  melters  to  refine,  at  an 
appreciable  expense.     "A.  V.,"  the  author  of  a  tract  addressed  to 
Lord  G-odolphin,  in  1696,  anticipated  this  suggestion.     "  When  the 
coyn  hath  alloy  and  not  the  household  plate,  etc.,  it  is  not  so  lyable 
to  be  melted  down,  for  the  charge  and  trouble  for  to  separate  it  will 
much  discourage  the  working  it  up."     This  suggestion  is,  of  course, 
appropriate  only  in  countries  where  there  is  a  standard  for  plate, 
gold  and  silver  ware,  etc.,  established  by  law  or  custom. 

8  See  pp.  44-8. 


184  MONEY. 

alone  pay,  and  pay,  too,  exactly  in  the  proportion  in 
which  they  travel,  which  is,  of  course,  right  in  theory), 
and  substitutes  therefor  a  service  maintained  at  the  ex- 
pense of  the  general  treasury,  justifies  and  requires  the 
making  free  this  other  great  agent  of  commercial  prog- 
ress. 

As  to  the  objection  that  the  removal  of  seigniorage 
causes  great  quantity  of  coin  to  be  melted  down  for 
export  unnecessarily,  when  some  slight  delay  or  trouble, 
not  commercially  appreciable,  would  suffice  to  send 
abroad  bullion  instead :  it  is  answered,  that  the  cost  of 
coinage,  with  modern  appliances,  is  at  most  but  small.1 
Mr.  Nicholson,  by  dividing  the  expenses  of  the  British 
Mint  for  six  months  by  the  number  of  sovereigns  coined 
during  the  year  (assuming  the  Mint  to  be  occupied  the 
remaining  six  months  in  coining  silver  and  bronze  pieces) 
gets  three  farthings  as  the  cost  of  coining  a  sovereign.2 
Moreover,  as  the  Mint,  with  its  machinery,  officers  and 
laborers,  has  to  be  maintained,3  in  any  event,  in  any 

1  The  cost,  per  cent,  of  value,  in  coining,  is  greater  proportionately 
the  smaller  the  denominations  of  the  coin;  and  also  greater  the 
smaller  the  amount  issued.  According  to  Prof.  Storch,  the  expense 
of  coinage,  per  cent,  of  value,  was,  for  gold  coins  as  compared  with 
silver  coins,  as  iollows : 

France,         gold  coins,     0.29 ;  silver  coins,     1.50 

England,         "        "          0.70;  "         "         2.22 

Denmark,       "       "  "         "        2. 

Eussia,  "       "         0.85;  "         "        2.95 

while  in  the  latter  country,  the  small  coins  of  25  copecks  cost  3.47 
per  cent,  and  those  of  10  copecks,  4.44  per  cent.  The  variety  of  de- 
nominations adopted  in  the  coinage  also  has  to  do  with  the  expenses 
of  the  mint. 

3  Science  of  Exchanges,  p.  101. 

3  "No  mint  can  be  kept  constantly 'at  work  unless  coining  be- 
comes a  kind  of  manufactory  for  foreign  commerce." — [Harris,  Essay 
on  Money  and  Coins.] 


SEIGNIORAGE.  185 

considerable  country,  the  actual  expense,  to  the  state,  of 
coming  an  additional  amount  may  be  small. 

The  country,  then,  it  is  argued,  is  compensated  for  the 
expense  involved  in  an  equality  in  the  value  of  gold  in 
coin  and  in  bars,  first,  by  the  instantaneousness  with 
which  the  export  of  gold  follows  the  slightest  accumula- 
tion in  excess;  and,  secondly,  by  the  fact  that,  with  a 
coinage  of  undiminished  value,  the  coins  will  often,  per- 
haps generally,  not  be  melted  down  when  exported,  but 
sent  abroad  in  bags,  and  will  either  be  returned  shortly 
in  the  course  of  exchange,  or,  being  admittedly  worth 
their  nominal  value  in  bullion,  a  kind  of  qualified  circu- 
lation, amounting  indeed  sometimes  to  a  full  and  free 
circulation,  will  be  given  them  in  foreign  countries. 
Such  a  circulation,  it  is  claimed,  will  amount  to  an  ad- 
vertisement of  the  trade  of  the  country  conducting  the 
coinage,  which  it  can  very  well  afford  to  pay  for,  as  truly 
as  a  merchant  can  afford  to  pay  for  advertisements  in  a 
newspaper,  or  a  circus-manager  for  having  his  fearful 
and  wonderful  pictures  displayed  along  the  streets. 

Thus  it  is  asserted,  not  without  show  of  cause,  that 
the  free  circulation  of  English  sovereigns  in  Portugal,1 
which  has  been  traditional  since  sovereigns  were  first 
coined,  has  been  worth  more  than  its  cost  to  British 
trade.  It  will  be  remembered  that  the  prime  advantage 
anticipated  from  the  coinage  of  the  "trade  dollar"  by 
the  Mint  of  the  United  States  was  the  advertisement  of 
our  trade  with  China. 

So  much  for  seigniorage  in  the  sense  which  we  have 
thus  far  given  to  the  word,  as  covering,  that  is,  the  ex- 
penses of  coinage.  But  seigniorage  may  be  made  to 
have  a  wider  application,  and  may  come  to  include  any 

1  And,  by  a  sort  of  political  sequence,  in  Brazil. 


186  .  MONEY. 

charge  which  the  sovereign  or  the  state,  having  the  mo- 
nopoly of  coinage,  shall  be  pleased  to  make.  And  this 
extent  seigniorage  has  historically  had  in  a  degree,  at 
times,  which  has  dwarfed  all  consideration  of  the  actual 
cost  of  performing  the  service. 

So  troublesome  is  it,  in  economical  discussions,  to  be 
obliged  to  distinguish,  continually,  between  the  two  sorts 
of  seigniorage,  that  M.  Chevalier  has  proposed  to  apply 
the  term  brassage  to  the  charge  for  the  actual  expenses 
of  coinage,  leaving  seigniorage  to  express  the  charges 
which  are  in  the  nature  of  a  tax  for  the  benefit  of  the 
sovereign  or  of  the  state. 

The  exercise  of  the  larger  right  of  seigniorage  has  been 
carried  to  great  extremes.  Euding,  the  English  anti- 
quarian in  the  department  of  money,  finds  that,  at  one 
period  in  the  reign  of  Edward  IV,  the  seigniorage  on 
gold  was  above  thirteen  per  cent.  In  the  thirty-seventh 
year  of  Henry  YII  it  exceeded  sixteen  per  cent.  These, 
however,  were  exceptional  instances.  The  average  of 
the  period  eighteenth  Edward  III  to  fourth  Edward  IY 
was  between  three  and  four' per  cent.  "The  seigniorage 
on  silver,"  says  Jacob,  "never  seems  to  have  attained 
the  monstrous  height  to  which  that  on  gold  had  been  car- 
ried in  some  few  instances.  It  was,  however,  raised  or 
lowered  according  to  the  King's  greed  or  necessities."1 
The  seigniorage  exacted  by  John  II  of  France  rose  at 
times,  it  is  stated,  to  three-fifths,  changing,  however, 
says  Le  Blanc,  almost  every  week  and  sometimes  oftener. 

It  is  in  successive  reductions,  through  the  exercise  of 
sovereign  authority,  of  the  quantity  of  fine  gold  and 
silver  in  the  coin,  that  we  find  the  explanation  of  the 
use  of  the  word  pound  in  English,  and  livre  in  French 

1  Inquiry  into  the  Precious  metals,  p.  209. 


DEBASEMENT  OF  COIN.  187 

coinage.  The  English  pound  was  once  an  actual  pound 
of  silver ;  but  a  pound  of  standard  silver  is  now  coined, 
not  into  twenty,  but  into  sixty-six  shillings.  The  "pound 
Scots"  had  been  reduced  to  one-thirty-sixth  of  its  orig- 
inal value.  Even  the  material  of  coins  has  been  changed 
by  the  exercise  of  this  same  right  of  the  sovereign.  The 
florin  was  once  a  piece  of  gold;  it  is  now  a  piece  of 
silver ;  the  Spanish  maravedi  was  once  a  piece  of  gold ; 
it  is  now  a  piece  of  copper. 

Against  seigniorage  carried  further  than  the  cost  of 
coinage,  economists  have,  in  general,  raised  a  decided 
protest.  "  The  limits  beyond  which  a  seigniorage  can- 
not be  advantageously  extended,"  says  Kicardo,  "  are  the 
actual  expenses  incurred  in  manufacturing  the  coin." — 
[Keply  to  Bosanquet,  p.  91.]  The  distinction  is,  how- 
ever, very  strongly  drawn  between  a  reduction  in  the 
quantity  of  pure  metal  in  the  coin,  produced  by  the  in- 
troduction of  an  increased  proportion  of  alloy,  and  a  re- 
duction effected  by  diminishing  the  weight  of  the  coin, 
preserving  the  customary  fineness.1  It  is  evident  that 
the  difference  in  the  two  cases  is  merely  that,  in  the  lat- 
ter case,  the  change  is  advertised,  if  not  by.  public  proc- 
lamation, then,  by  each  man's  senses,  for  himself,  and 
the  community  are  enabled  to  adapt  their  commercial 
transactions  to  the  new  state  of  the  coinage ; 2  while  the 

1  "  The  debasement  of  coin,  in  its  proper  sense,  means  a  reduction 
of  fineness.     This  has  occurred  only  in  one  instance  in  our  silver 
coinage ;  or  rather,  when  our  3  cent  coin  was  instituted,  by  the  Act 
of  March  3,  1851,  it  was  £  (.750)  fine  and  was  afterwards,  by  act  of 
March  3,  1853,  raised  to  .900,  the  fineness  of  the  larger  coins." — 
[Letter  of  James  Pollock,  Director  of  the  U.  S.  Mint,  January  17, 
1863.] 

2  "  I  have  sometimes  been  surprised,"  says  Mr.  Hallam,  "  at  the 
facility  with  which  prices  adjusted  themselves  to  the  quantity  of 


188  MONET. 

reduction  of  fineness  has  generally  been  in  the  nature  of 
a  fraud,  to  be  concealed  long  after  it  had  begun  to  work 
pernicious  effects. 

"  The  legend  of  the  Maltese  money,"  says  Prof.  Eogers, 
"ran — 'non  ces  sed  fides' — designating  that  the  basis  of 
the  currency  must  be  laid  in  the  integrity  of  those  who 
issue  it.  Yet  hardly  a  European  government  fulfilled 
the  duty,  even  if  they  understood  and  acknowledged  it. 
But  the  kings  of  France  were  the  principal  offenders. 
They  diminished  the  amount  of  silver  in  their  coins. 
This  is  a  temporary  wrong,  a  remediable  offense.  But 
they  debased  it  also,  a  far  more  serious  and  lasting  evil. 
Philip  the  Fair  was  threatened  with  excommunication 
by  Boniface  the  Eighth  for  this  fraud,  and  was  .branded 
as  long  as  time  lasts  by  Dante  for  his  offense 

"But  the  greatest  offender  in  this  particular  was  the 
unlucky  John,  the  prisoner  of  Poitiers.  .  .  .  Owing 
to  this  king's  practices — whom  the  romances  called  the 
Good — the  value  of  the  currency  underwent  seventy 
changes  in  ten  years.  John  took  an  oath  of  his  moneyers 
that  they  would  keep  his  frauds  a  profound  secret,  espe- 
cially from  the  merchants To  me  the  weak- 
ness of  France,  during  the  century  1340-1440,  seems  to  be 
directly  traceable  to  economical  causes,1  to  the  universal 

silver  contained  in  the  current  coin,  in  ages  which  appear  too  ignorant 
and  too  little  commercial  for  the  application  of  this  mercantile  prin- 
ciple. But  the  extensive  dealings  of  the  Jewish  and  Lombard  usurers 
who  had  many  debtors  in  all  parts  of  the  country  would  of  itself 
introduce  a  knowledge  that  silver,  not  its  stamp,  was  the  measure  of 
value."— [Middle  Ages,  iii,  348.] 

1  "  In  this  way,"  says  Mr.  Kitchin,  "  Philip  of  Valois  made  ready 
to  meet  the  dangers  of  the  great  Hundred  Years'  War,  which  would 
so  soon  break  forth  upon  his  shores." — [History  of  France,  p.  394.] 

"Parmi  les  gouvernements  civilises,  celui  de  1'Espagne  est  le  der- 


SEIGNIORA  GE  AND  PRICES.  189 

distrust  which. these  royal  frauds  induced.  .  .  .  Exactly 
similar  results,  though  perhaps  of  a  less  serious  kind, 
attended  the  frauds  of  Henry  VIII,  and  the  Protector 
Somerset."— [Hist.  Gleanings,  i,  95-7.] 

What  is  the  effect  of  Seigniorage  on  the  purchasing 
power  of  coin,  that  is,  on  Prices? 

Properly  to  answer  this  question  will  require  our 
most  careful  reference  to  the  principles  we  have  already 
reached1  respecting  the  relations  of  the  volume  of  mon- 
ey to  the  prices  of  commodities ;  while  a  correct  answer 
to  the  question  here  will  afford  us  a  key  to  the  myste- 
ries of  inconvertible  paper  money.  Let  us  trace  Mr. 
Ricardo's  views  on  this  point. 

Suppose,  in  a  certain  country,  there  are  required,  for 
the  purposes  of  internal  trade,  1,000,000  pieces,  each 
containing  100  grains  of  fine  gold.  There  are,  then, 
100,000,000  grains  of  fine  gold  in  use  as  money ;  and  a 
certain  average  level  of  prices  is  determined  by  the  rela- 
tion between  this  amount  and  the  demand  for  money 
arising  from  the  exchanges  actually  needing  to  be  ef- 
fected by  the  use  of  money. 

Now,  suppose  the  principle  of  seigniorage  to  be  intro- 
duced; and  the  sovereign,  out  of  every  100  grains 
Brought  to  the  mint,  takes  one  grain  for  the  actual  cost 
of  coinage,  giving  back,  thus,  1,000,000  pieces  of  99 
grains  each,  and  putting  1,000,000  grains  into  his  own 
storehouse  as  treasure,  or  causing  it  to  be  manufactured 
into  plate.  There  are  now  only  99,000,000  grains  of 

nier  qui  ait  cru  pouvoir  clandestinement  vicier  les  monnaies.     C'est 
ainsi  que  la  monnaie  d'or,  deja  alteree  en  1772,  fut  mise,  en  1786,  a, 
875  millieraes.     Le  litre  des  monnaies  espagnoles  fabriquees  dans  le 
nouveau  monde,  etait  primitivement  de  917  milliemes." — [M.  Chev- 
alier, La  Monnaie,  p.  51.] 
1  See  pp.  59-65. 
16* 


190  MONEY. 

fine  gold  in  circulation ;  but  the  same  number  of  pieces, 
of  the  same  mint-value. 

Will  each  piece  now  purchase  as  much  of  other  com- 
modities as  before,  or  less? 

Mr.  Kicardo  answers,  as  much.1  There  is  the  same 
demand  for  pieces  for  the  purposes  of  exchange ;  there 
is  the  same  supply :  the  same  price  results. 

How,  then,  can  we  say  that  money  is  the  measure  of 
value,  and  that,  to  measure  value,  we  must  have  value, 
and  that  value  is  proportional  to  the  labor  expended? 

I  gave  warning2  that  we  should  have  to  revise  this 
view  of  the  Money-function,  and  we  are  now  getting  a 
glimpse  of  the  ground ;  but  we  shall  so  much  better  com- 
mand the  field  from  a  point  yet  to  be  reached3  that  we 
need  only  make  a  note  of  the  question  here. 

But  suppose  the  sovereign  proceeds  further,  and  takes 
out  10  grains  from  every  100,  putting  10,000,000  grains 
into  his  storehouse;  and  issuing  1,000,000  pieces  contain- 
ing 90  grains  each,  but  of  the  same  official  denomination 
as  before.  Will  the  purchasing  power  of  each  piece  be 
affected?  Not  at  all,  says  Mr.  Hicardo ;  there  is  the  same 
demand  for  pieces  to  effect  exchanges ;  the  same  supply : 
the  value  of  each  piece  is  therefore  maintained,  and  the 
same  rate  of  general  prices  results. 

But  let  us  take  a  step  in  a  somewhat  different  direc- 
tion, and  suppose  that  the  sovereign,  instead  of  placing 

1  M.  Chevalier  apparently  dissents.  "  Comme  les  especes  mon- 
naye'es  ne  sont  qu'une  marchandise  intermediaire  et  ne  passent  qu' 
en  cette  qualite,  les  changements  que  les  princes  apportaient  au  poids 
ou  au  litre  des  monnaies  entrainaient  toujours,  du  moment  qu'ils 
etaient  connus,  un  changement  pareil  dans  les  prix." — [La  Monnaie, 
47.] 

3  See  pp.  4-9. 

3  See  pp.  280-90. 


SEIGNIORAGE  AND  PRICES.  191 

the  10,000,000  grains,  which  he  has  charged  as  seignior- 
age, in  his  treasury,  coins  them  into  pieces  of  ninety 
grains  each,  and  issues  them  in  purchase  of  supplies  for 
his  army  or  his  household.  Immediately  we  have  a 
supply  in  excess  of  the  demand,  and  depreciation  results. 
The  90,000,000  grains,  while  coined  into  the  same  num- 
ber of  pieces  of  the  same  official  denomination  as  the 
100,000,000  had  been,  retained  the  same  purchasing 
power;  but  when  the  100,000,000  are  coined  into  a  larger 
number  of  pieces,  the  purchasing  power  of  each  piece 
falls  at  once. 

This  is  Mr.  Ricardo's  argument  in  his  "Reply  to 
Bosanquet": 

"There  can,"  he  asserts,  "exist  no  depreciation  of 
money,  but  from  excess ;  however  debased  a  coinage  may 
become,  it  will  preserve  its  mint  value ;  that  is  to  say,  it 
will  pass  in  circulation  for  the  intrinsic  value  of  the  bullion 
u'hich  it  ought  to  contain,1  provided  it  be  not  in  too  great 
abundance." — [Pp.  94-5.] 

Again:  "While  the  state  alone  coins,  there  can  be  no 
limit  to  this  charge  of  seigniorage,  for  by  limiting  the 
quantity  of'  coin,  it  can  be  raised  to  any  conceivable 
value." — [Political  Economy,  p.  212.]  And  still  further  : 
"  On  the  same  principle,  namely,  by  a  limitation  of  quan- 
tity, a  debased  coin  would  circulate  at  the  value  it  should 
bear  if  it  were  of  legal  weight  and  fineness,  and  .  not  at 
the  value  of  the  quantity  of  metal  which  it  actually  con- 

3  I  must,  in  candor,  confess  myself  wholly  unable  to  offer  an  ex- 
planation of  a  remark  made  by  the  same  writer,  in  his  pamphlet  on 
the  "High  Price  of  Bullion,"  that  "if  guineas  were  degraded,  by 
clipping,  to  half  their  present  value,  every  commodity,  as  well  as 
land,  would  rise  to  double  its  present  nominal  value."  There  can  be. 
no  doubt  that  the  principle  stated  in  the  text  contains  Mr.  Ricardo's 
settled  view  of  the  subject. 


192  MONEY. 

tained.  In  the  history  of  the  British  coinage,  we  find 
accordingly  that  the  currency  was  never  depreciated  in 
the  same  proportion  that  it  was  debased,  the  reason  of 
which  was,  that  it  was  never  increased  in  quantity,  in 
proportion  to  its  diminished  intrinsic  value." — [Ibid.'] 

Mr.  Eicardo  offers  the  following  illustrations  of  his 
principle  from  the  history  of  English  money : 

"  Our  silver  currency  now  (1811)  passes  at  a  value  in 
currency  above  its  bullion  value,  because,  notwithstand- 
ing the  profits  obtained  by  the  counterfeiter,  it  has  not 
yet  been  supplied  in  sufficient  abundance  to  affect  its 
value." 

"It  is  on  this  principle,  too,  that  the  fact  must  be  ac- 
counted for,  that  the  price  of  bullion  previously  to  the 
recoinage  in  1696,1  did  not  rise  so  high  as  might  have 
been  expected  from  the  then  debased  state  of  the  curren- 
cy :  the  quantity  had  not  been  increased  in  the  same 
proportion  as  the  quality  had  been  debased." — [Reply 
to  Bosanquet,  p.  96.] 

And  again,  he  says  of  the  period  previous  to  1797 : 
"  The  silver  currency  was,  during  a  part  of  this  period, 
very  much  debased,  but  it  existed  in  a  degree  of  scarcity, 
and,  therefore,  on  the  principle  which  I  have  before  ex- 
plained, it  never  sank  in  its  current  value." 

Now  what,  according  to  Mr.  Eicardo,  would  become 
of  the  coins  thus  in  excess? 

We  have  seen  that  upon  his  principle  there  was,  in 
the  case  taken,  a  demand  (from  trade  in  its  then  existing 
conditions)  for  1,000,000  pieces,  of  the  mint-value  of  100 
grains  of  gold  each ;  that  the  fact  that  the  coins  were 
pinched  at  the  mint  till  they  contained  but  90  grains 
each,  could  not  alter  the  purchasing  power  of  the  whole 

1  See  pp.  209-12. 


GRE SHAM'S  LA  W.  193 

body  of  1,000,000  pieces,  which  would  "preserve  its  mint- 
value,  that  is  to  say,  pass  in  circulation  for  the  intrinsic 
value  of  the  bullion  which  it  ought  to  contain." 

And  Mr.  Kicardo  does  not  flinch  from  supposing  a 
seigniorage  of  50  per  cent,  with  the  same  result :  the  50,- 
000,000  grains  spared  by  government  accomplishing  the 
same  exchanges  at  the  same  prices,  if  coined  into  1,000,- 
000  pieces  of  the  mint  value  of  100  grains  each,  as  twice 
the  amount  of  gold  had  done.  But,  now  that,  with  a 
seigniorage  of  10  per  cent.,  there  are  issued,  not  1,000,- 
000,  but  1,111,111,  pieces  of  the  mint  value  of  100  grains 
each,  depreciation  must  result.  The  state  of  the  world's 
commerce  will  not  allow  the  commodities  offered  for 
money  in  .that  country  to  be  exchanged,  at  prices  corre- 
sponding with  those  of  other  countries,  by  means  of  a 
currency  of  the  mint  value  of  111,111,100  grains. 

Exportation  is  the  sole  resource.  But  which  shall  be 
exported?  The  whole  body  of  coin  has  become  depre- 
ciated :  what  is  to  determine  which  portions  shall  "leave 
their  country  for  their  country's- good "? 

We  have  supposed  the  coins  to  be  all  issued  of  a  uni- 
form weight  of  90  grains  of  fine  gold ;  but,  in  the  nature 
of  things,  this  uniformity  cannot  long  continue.  Some 
will  pass  into  more  active  use  than  others,  and  hence 
will  suffer  more  rapid  abrasion.  The  criminal  acts  of 
the  clipper  and  sweater  will  be  necessarily  exercised 
with  great  irregularity  upon  the  circulating  coin.  Upon 
a  body  of  money  of  unequal  value,  the  principle  known 
as 

GBESHAM'S  LAW 

will  at  once  begin  to  operate.     This  principle,  called  by 
the  name  of  Sir  Thomas  Gresham,  the  founder  of  the 
17 


194  MONEY. 

Royal  Exchange  of  London,  is  that,  of  two  sorts  of  money 
circulating  together,  the  inferior  will  drive  out  and  re- 
place the  better.  Stated  thus,  without  qualification,  as  it 
usually  is,  the  proposition  is  not  true.  It  is  only  when 
the  body  of  money  thus  composed  is  in  excess,  that  the 
better  part  begins  to  yield  place  and  retire  from  circula- 
tion. 

"It  is  a  mistaken  theory,  therefore,  to  suppose  that 
guineas  of  5dwt.  Sgr.  cannot  circulate  with  guineas  of 
5dwt.,  or  less.  As  they  might  be  in  such  limited  quan- 
tity that  both  the  one  and  the  other  might  actually  pass 
in  currency  for  a  value  equal  to  5dtut.  10{/r.,  there  would 
be  no  temptation  to  withdraw  either  from  circulation, 
there  would  be  a  real  profit  in  retaining  them."1— 
[Eicardo,  Reply  to  Bosanquet,  pp.  95-6.] 

When,  however,  the  aggregate  amount  of  the  two  or 
more  sorts  of  money  in  circulation  becomes  excessive, 
that  is,  greater  than  the  community's  distributive  share 
of  the  money  of  the  world,  the  principle  of  Gresham's  Law 
begins  at  once  to  operate,  acting  through  the  desire  of 

1  It  is  in  this  way  that  we  explain  the  phenomenon  noted  by 
Alexander  Hamilton  when  he  says  in  his  "  Report  on  the  Mint " : 
"  The  new  Dollar  has  a  currency  in  all  payments  in  place  of  the  old 
[which,  he  had  stated,  '  by  successive  diminutions  of  its  weight  and 
fineness,  has  sustained  a  depreciation  of  five  per  cent.'],  with  scarcely 
any  attention  to  the  difference  between  them;  "  and  again  he  speaks 
of  "  the  unequal  values  allowed  in  different  parts  of  the  union  to 
coins  of  the  same  intrinsic  worth." 

Mr.  Buchanan  had  neglected  this  consideration  in  his  remarks  on 
the  money  in  use  in  the  British  American  colonies,  and  Mr.  Ricardo 
corrects  him  as  follows :  "  Mr.  Buchanan  evidently  thinks  that  the 
whole  currency  must  necessarily  be  brought  down  to  the  level  of  the 
value  of  the  debased  pieces;  but  surely,  by  a  diminution  of  the 
quantity  of  the  currency,  the  whole  that  remains  may  be  elevated  to 
the  value  of  the  best  pieces." — [Political  Economy.] 


QRESHAM'S  LA  W.  195 

men  to  pay  their  debts,  or  effect  their  purchases,  with  the 
least  valuable  commodity  which  will  answer  the  require- 
ments of  exchange.  By  this  means  the  heavier  coins  are 
selected1  for  exportation  in  payment  of  debts  abroad, 
where  only  the  actual  weight  of  fine  metal  will  determine 
their  power  in  exchange,  or  for  consumption  in  the  arts, 
industrial  or  decorative,  at  home,  where  the  denomina- 
tion of  the  coin  is  of  equally  little  account. 

It  is  not  to  be  understood  that  the  mass  of  the  people 
engage  in  this  occupation  of  sifting  the  coin  to  get  out 
the  heavier  pieces.  It  is  the  dealer,  and  especially  the 
dealer  in  money,2  who,  with  his  scales  alwajTs  at  hand 
and  always  adjusted,  quickly  detects  the  least  difference 
in  weight,  letting  the  light  coins  go  their  way  into  cir- 
culation again,  while  those  of  full  weight  are  quietly  laid 
aside  till  wanted  by  the  jeweler  or  the  exporter. 


We  have  said  that,  on  Ricardo's  principle,  it  does  not 
matter  whether  the  loss  of  the  precious  metal  in  the  coin 
results  from  an  external  abrasion  from  year  to  year  in 
circulation,  or  through  the  clipping  or  sweating3  of  the 

1  "Picking  or  selecting   which  some  persons  think  to  stigmatize 
under  the  affected  name  of  bittonnage,  or  trebuchage." — [Chevalier  on 
Gold,  Cobden's  transl.] 

2  King  John  of  France,  when  a  prisoner  in  the  hands  of  the  En- 
glish, employed,  it  is  said,  agents  to  pick  the  nobles  of  the  first  and 
second  coinage,  for  transmission  to  France,  and  did  quite  a  flourish- 
ing business  in  this  way. 

3  Peculiarly  an  English  crime :    "  La  coupable  Industrie  de  la  ro- 
gnure  semble  avoir  ete  pratiquee  en  Angleterre  qu'ailleurs." — [Chev- 
alier, La  Monnaie,  p.  81.] 

Let  us  not,  however,  exclude  the  English  colonies.  The  mer- 
chants of  New  York  in  a  petition  to  Lord  Cornbury  complained  as 


196  MONEY. 

coin,  or  from  an  original  abstraction  of  a  certain  portion 
of  the  metal  at  the  mint,  whether  for  the  expenses  of 
coinage,  or  for  the  profit  of  the  sovereign.  In  no  case 
will  depreciation  result,  unless  the  coin  be  supplied  in 
excess. 

We  cannot  too  often  repeat  his  words :  "  However  de- 
based a  coinage  may  become,  it  will  preserve  its  mint- 
value,  that  is  to  say,  it  will  pass  in  circulation  for  the  in- 
trinsic value  of  the  bullion  which  it  ought  to  contain,  pro- 
vided it  be  not  in  too  great  abundance."  There  is  ob- 
servable in  discussion  an  inveterate  tendency  to  slip 
away  from  this  doctrine,  even  on  the  part  of  those  who 
in  terms  accept  it  in  its  fullness.  This  tendency  is  due, 
I  apprehend,  to  the  influence  of  the  idea  that  money 
measures  value  as  the  yard-stick  measures  length,  or  the 
bushel,  capacity.  It  is  evident  that,  were  the  yard-stick 
or  the  bushel-measure  to  be  treated  as  we  have  supposed 
the  coin  to  be,  that  is,  were  the  yard-stick  to  be  shorn  of 
three  or  four  inches,  or  the  bushel  measure  to  have  a 
false  bottom  inserted,  we  should  not  avoid  disturbance 
of  relations  in  buying  and  selling  goods,  simply  by  lim- 
iting the  number  of  such  yard-sticks  and  bushel-meas- 
ures to  the  number  of  the  unabridged  articles  previously 
in  use. 

This  idea  of  money  as  a  measure  of  value  is  going  to 
give  us  a  great  deal  of  trouble  till  we  finally  settle  it,  as 
I  hope  we  shall  be  able  to  do  when  we  reach  the  discus- 
sion of  Inconvertible  Paper  Money. 

follows :  "  The  people  of  Boston  publicly  and  avowedly  have  prac- 
ticed to  clip  and  file  all  the  small  current  money  along  the  con- 
tinent, to  25  per  cent,  loss,  which  practice  and  the  unlawful  profit 
coming  thereby,  did  encourage  enough  to  make  it  their  business  to 
carry  it  thither  and  return  it  again  to  us  and  our  neighbors,  where  it 
passed  for  the  same  value  as  formerly." — [Documentary  History  of 
New  York.] 


DISCREDIT  OF  THE  COIN.  197 

But  if  the  abstraction,  under  the  name  of  seigniorage, 
of  a  portion  of  the  precious  metals  which  the  coin  for- 
merly contained,  whether  that  portion  be  one  per  cent., 
or  ten,  or  fifty ;  whether  it  be  to  cover  simply  the  cost  of 
coining  or  to  afford  a  revenue  to  the  sovereign  or  the 
state,  does  not  necessarily  affect  the  purchasing  power 
of  the  coin,  why  is  not  seigniorage  in  every  way  eco- 
nomically desirable  ? 

It  meets  the  charge  of  coinage,  which  otherwise  falls 
upon  the  state ;  it  may  be  used  to  form  a  sort  of  sinking- 
fund,  against  the  expense  of  recoinage,1  whenever  that 
shall  become  necessary ;  it  may  even  be  used  as  a  form 
of  taxation,  to  bring  a  large  revenue  into  the  public 
treasury.  Moreover,  it  enables  a  smaller  amount  of  the 
precious  metals  to  discharge  the  office  of  circulation,  and 
thus  allows  a  portion  of  the  labor  employed  in  mining 
to  be  directed  to  agriculture  or  mechanical  industry. 

In  reply  to  these  arguments  it  will  suffice,  at  present, 
to  say  that'  we  shall  meet  them  all  again  in  our  discus- 
sion of  Paper  Money,  and  in  a  shape,  too,  where  they 
can  be  more  conveniently  canvassed  and  more  conclu- 
sively answered.  "  The  whole  charge  for  Paper  Money,'1 
says  Mr.  Eicardo,  "may  be  considered  as  Seigniorage."2 

I  have  thus  far  made  use  of  Mr.  Bicardo's  name  in 
tracing  the  effects  of  seigniorage  on  the  purchasing 

1  Prof.  Jevons  brings  out  this  idea  in  his  "  Money  and  the  Mechan- 
ism of  Exchange."     He  shows  that  the  British  seigniorage  of  9  per 
cent,  or  thereabouts,  on  silver  coin,  more  than  provides  for  the  issue 
of  fresh  coins  as  those  in  circulation  are  returned,  worn  or  clipped, 
to  the  Mint.— [Pp.  163-4.] 

2  Political  Economy.     In  his  "  Reply  to  Bosanquet,"  he  says  :   "A 
Bank-note  may  be  considered  as  a  piece  of  money  on  which  the 
seigniorage  is  enormous ;  amounting  to  all  its  value." 


198  MONEY. 

power  of  coin,  the  reason  being  that  it  seems  to  me  an 
important  proviso  needs  to  be  made  in  the  practical  ap- 
plication of  this  doctrine  to  the  actual  coinage  of  any 
country  at  any  time.  Mr.  Kicardo's  conclusions  are  just, 
upon  his  assumption,  not  expressed,  indeed,  and  this  is 
where  he  scarcely  did  justice  to  his  readers  ;  but  clearly 
carried  along  by  Mr.  Ricardo  in  his  reasoning,  viz.,  that 
the  general  knowledge,  or  the  popular  suspicion,  of  a  re- 
duction of  the  metal  in  the  coin  does  not  operate  upon 
the  public  mind  to  interfere  with  its  circulation.1 

In  other  words,  Mr.  Eicardo's  reasoning  assumes  that 
the  demand  for  money  is  fixed  in  the  state  of  produc- 
tion and  trade,  at  the  time,  with  the  commercial  agencies 
existing;  that  the  people  will  use  so  much  money,  any- 
how ;  and  that  the  supply  of  money,  that  is,  the  number 
of  money-pieces,  or  coins,  of  a  given  mint-value,  has 
alone  to  do  with  the  question  whether  depreciation  shall 
result. 

And  it  needs  to  be  said  that  such  a  reduction  in  the 
quantity  of  metal  in  the  coin  may  conceivably  take  place, 
nay,  there  is  reason  to  believe,  actually  has  taken  place 
in  not  a  few  instances,  with  the  full  public  knowledge  of 
the  fact,  and  yet  without  affecting  the  currency  of  the 
coin,  and  hence  without  affecting  the  demand  for  money. 

But  such  is  not  necessarily,  and  there  is  reason  to  be- 
lieve that  it  has  not  always  been  actually  the  case. 
Hence,  when  we  speak  of  a  debased  coinage  circulating 
without  depreciation,  if  not  in  excess  of  the  amount  of 

1  Prof.  Sumner  gives  countenance  to  the  proposition,  "  the  worse 
the  currency,  the  more  mobile  it  will  be,"  provided  it  be  uniformly 
bad. — [Hist.  Am.  Currency,  p.  176.]  It  takes  two  to  make  a  bar- 
gain. It  is  true  that  the  worse  the  currency,  the  more  anxious  the 
holder  is  to  pass  it  off;  it  is  also  true  that  every  other  person  is,  on 
that  account,  less  willing  to  receive  it. 


DISCREDIT  OF  THE  COIN.  199 

money  of  full  value  which  might  circulate  in  the  com- 
munity at  the  time,  it  must  be  understood  always  with 
the  proviso,  that  nothing  in  the  public  mind  limits  the 
circulation  of  such  a  debased  coinage ;  for,  should  it  be 
blown  upon,  should  prejudice  arise  against  it  to  such  an 
extent  that,  rather  than  receive  it,  people  will  resort  to 
barter,  in  spite  of  all  its  inconveniences,  or  to  extended 
credit  leading  to  the  mutual  cancellation  of  obligations,1 
then  we  should  have  a  new  condition ;  the  demand  for 
money  would  be  diminished  just  so  far;  and  an  amount 
of  coin  not  in  excess  of  the  amount  of  money  of  good  re- 
pute which  would  circulate  freely,  might  become  redun- 
dant and  hence  depreciated. 

Such  a  prejudice  against  the  coin  in  circulation  as  is 
referred  to,  might  be  produced  among  the  ignorant  and 
unthinking  by  false  reports  concerning  its  weight  or 
fineness,  or  by  mere  abuse  of  it  from  the  press  or  from 
persons  in  high  positions.  Among  the  more  intelligent 
classes,  an  apprehension  of  larger  issues  or  of  further 
debasement  might  lead  to  distrust  and  a  reluctance  to 
receive  considerable  amounts  of  it. 

As  was  remarked2  in  our  analysis  of  the  Money-func- 
tion :  while  barter  is,  in  a  large  proportion  of  the  ex- 
changes of  modern  industrial  society,  impracticable,  in 
respect  to  other  large  bodies  of  exchange  operations,  it 
is  simply  a  question  of  a  little  inconvenience  or  risk, 
more  or  less,  whether  barter,  or  exchange  through  the 
medium  of  money,  shall  be  resorted  to.  "  In  agriculture 
the  world  over,  full  payment  in  money  is  highly  excep- 
tional, where  it  is  not  wholly  unknown.  In  England, 
the  money  wages  in  general  far  exceed  the  estimated 

1  See  pp.  65-9. 
2  P.  21. 


200  MONEY 

value  of  all  the  other  forms  of  payments,  and  rarely  con- 
stitute less  than  one-half  the  nominal  wages.  In  Scot- 
land, except  in  the  neighborhood  of  large  towns,  pay- 
ment in  kind  is  very  general,  while  in  some  parts  of  the 
Highlands  little  money  passes  at  all  between  employer 
and  employed.  In  Germany,  the  report  of  the  recent 
Commission  of  the  Agricultural  Congress  proves  the 
custom  of  payments  in  kind  to  prevail  in  every  province 
from  East  Prussia  to  Alsace.  In  France  this  custom 
prevails,  to  a  greater  or  less  extent* in  all  departments. 
In  the  United  States,  board  to  the  unmarried  laborer 
is  perhaps  the  rule ;  while  in  the  South,  at  least,  the 
payment  in  kind  generally  includes  the  subsistence  of 
the  laborer  and  his  family,  and  to  a  considerable  extent, 
other  necessaries  of  life."1 

Now,  it  is  obvious  that  in  all  branches  of  agriculture 
where  the  produce  was  suitable  for  the  laborer's  con- 
sumption, any  degree  of  distrust  of  the  coin  in  circula- 
tion might  result  in  throwing  the  body  of  laborers  and 
employers  back  in  a  greater  degree  upon  the  condition 
of  barter.  Many  employers  had  reasoned  that  they 
would  not  be  harassed  by  the  small  cares  and  troubled 
by  the  inevitable  complaints  attending  the  payment  of 
wages  in  kind ;  they  would  market  their  crops  and  pay 
their  workmen  the  stipulated  wages  in  money,  letting 
them  feed,  shelter,  clothe,  and  otherwise  provide  for 
themselves.  In  this  way  the  employers,  while  losing  the 
possible  profits  of  truck,  would  be  relieved  from  a  thou- 
sand annoyances  and  inconveniences ;  would  no  longer 
have  to  hear  the  good  wives  chatter  about  leaky  roofs 
and  broken  windows,  or  their  good  men  growl  over  un- 
dersized potatoes,  thin  cider,  musty  meal  or  green  fire- 

1  Walker,  The  Wages  Question,  p.  20. 


DISCREDIT  OF  THE  COIN.  201 

wood.  At  the  same  time,  this  willingness  of  the  employ- 
ers to  dispense  with  payment  in  kind  had  doubtless  been 
assisted  by  the  growing  uneasiness  of  the  laborers  and 
their  readiness  to  revolt  against  truck,  or  at  least  to  give 
preference  to  masters  who  paid  in  cash.  But  a  distrust 
of  the  money  which  had  been  the  ordinary  medium  of 
payments  might  send  both  the  parties  gladly  back  to 
barter.  However  strong  the  workman's  educated  dislike 
of  truck,  he  might  choose  it  rather  than  be  robbed 
through  a  fraudulent  money. 

It  was  said  that  a  return  to  barter  might  be  effected 
in  the  case  of  all  branches  of  agriculture  where  the 
produce  was  suitable  for  the  laborer's  use.  In  the  case 
of  the  cotton  crop,  however,  the  produce  of  the  planta- 
tion is  not  suitable,  in  its  raw  state,  for  personal  con- 
sumption, and  when  made  up  it  meets  but  one  of  his 
many  wants.  Even  here,  however,  under  such  circum- 
stances as  we  are  contemplating,  both  masters  and  men 
would  find  it  for  their  interest  to  come  to  the  plan  of 
paying  and  receiving  wages,  in  a  degree,  at  least,  in  arti- 
cles necessary  for  subsistence.  The  employer  might 
agree  to  furnish  definite  quantities  of  bacon,  corn,  and 
clothing  for  the  laborer  and  his  family,  in  return  for  defi- 
nite amounts  of  work,  and  thus  obviate  the  use  of  the 
distrusted  medium.  By  thus  making  one  person  purvey- 
or for  large  numbers,  a  great  saving  would  be  effected  in 
the  use  of  coin,  for  it  is  retail  trade  which  especially  de- 
mands the  employment  of  money. 

Moreover,  the  reputation  and  pecuniary  responsibility 
of  the  employer  would  permit  the  extensive  introduction 
of  credit,  resulting  in  the  mutual  cancellation  of  large 
amounts  of  obligations,  which,  in  the  ordinary  course  of 
trade,  would  have  been  separately  settled,  at  their  differ- 
ent dates  of  maturity,  by  the  use  of  money.  The  plant- 
17* 


202  MONEY. 

er,  with  his  large  capital  and  his  growing  crop  as  secu- 
rity, might  purchase  supplies  wholesale,  not  only  at  lower 
rates,  but  on  longer  time,  than  his  individual  laborers 
could  do.  This  would  allow  him  to  pay  for  his  supplies 
""by  bills  drawn  on  the  consignees  of  his  crop,  and  thus  the 
necessity  for  the  use  of  money  be  entirely  obviated. 

In  the  two  ways  thus  described,  a  large  portion  of  all 
the  money  ordinarily  used  in  the  payment  of  agricultural 
wages  and  kept  in  circulation  between  agricultural  la- 
borers and  the  small  shop-keepers  who  supply  their 
wants,  might  be  released  through  the  operation  of  a  con- 
tinued and  increasing  distrust  or  dislike  of  the  coin,  aris- 
ing from  a  popular  knowledge  of  its  debasement,  com- 
bined with  the  natural  apprehension  of  further  reductions 
in  quality,  so  that  an  amount  not  in  excess  of  what  would 
be  the  volume  of  money  of  full  value,  might  prove  re- 
dundant. 

The  .former  of  these  methods  of  reducing  the  use  of 
money  could  not  be  extensively  applied  in  most  branches 
of  mechanical  industry,  inasmuch  as  the  product  would 
generally  be  found  to  be  suited  to  few  or  none  of  the  la- 
borers' necessities;  but  the  latter  method  might  come 
largely  into  play  just  as  soon  as  suspicion  attached  to 
the  ordinary  medium  of  exchange.  Unquestionably,  to 
anticipate  somewhat,  this  was  one  of  the  reasons  which 
explain  the  rapid  depreciation  of  the  Revolutionary  pa- 
per money.  Not  only  was  the  amount  continually  in- 
creasing, under  the  pressure  of  the  financial  necessities 
of  Congress,  but  the  use  of  it  was  decreasing,  perhaps 
even  more  rapidly,  as  men  learned,  by  the  bitter  experi- 
ence of  their  losses,  to  make  exchanges  as  far  as  possible 
in  kind,  and  to  ask  and  give  accommodation  in  the  mat- 
ter of  payment,  so  as  to  bring  income  and  outgo  together, 
and  thus  secure  a  mutual  cancellation  of  obligations. 


DISCREDIT  OF  THE  COIN'.  203 

A  greater  or  smaller  use  of  money  is  often  not  a  mat- 
ter of  necessity,  but  of  convenience  or  even  of  pleasure 
or  fancy.1  If  the  circulating  medium  breaks  down  whol- 
ly or  in  part,  the  community  resorts  to  barter  or  to  credit, 
to  a  certain  extent,  with  perhaps  no  loss  whatever  indus- 
trially, but  only  a  slight  increase  of  personal  care  and 
trouble.  If  these  methods  have  to  be  carried  further 
and  applied  to  a  larger  volume  of  transactions  to  which 
they  are  less  easily  adapted,  there  may  be  an  appreciable 
loss  resulting  from  the  hinderance  of  production  and  of 
exchange ;  but  still,  that  loss,  being  definite,  may  be 
preferred  to  the  losses  apprehended  from  those  of  dis- 
trusted money. 

In  such  a  temper  of  the  public  mind,  many  dealers 
will  act  on  the  principle  announced  by  Swift's  Drapier : 
"  For  my  own  part,  I  am  already  resolved  what  to  do.  I 
have  a  pretty  good  shop  of  Irish  stuffs  and  silks:  and 
instead  of  taking  Mr.  Wood's  bad  copper,  I  intend  to 
truck  with  my  neighbors,  the  butchers,  the  bakers  and 
brewers  and  the  rest:  goods  for  goods."2 

I  have  not  intended,  in  what  has  been  said,  to  dispar- 
age the  importance  of  the  Money-function ;  but  only  to 
show  that,  in  any  advanced  state  of  industrial  society, 
there  is  a  margin,  often  a  wide  margin,  of  exchange 
transactions  which  may  be  occupied  by  barter  or  by 
money-sales,  indifferently,  so  far  as  any  actual  industrial 
loss  is  involved,  the  use  of  money  being  ordinarily  re- 
sorted to  from  the  force  of  habit,  or  from  considerations 
of  convenience  which  do  not  go  to  the  real  capabilities 
of  production ;  that  there  is  a  still  larger  body  of  ex- 

1  Prof.  Jevons  has  a  significant  paragraph  "  On  the  Force  of  Habit 
in  the  Circulation  of  Money." — [Money,  etc.,  p.  78-80.] 

2  Dean  Swift's  works.     "  Wood  hath  Liberty  to  offer  his  coin,  and 
we  have  Law,  Reason,  Liberty  and  Necessity,  to  refuse  it." 


204  MONEY. 

change  transactions  in  respect  to  which  the  choice  be- 
tween barter  or  money-sales  is  a  matter,  not  of  necessity, 
but  of  convenience,  within  a  degree  which  may  allow  the 
advantages  of  the  latter  method  to  be  offset  by  evils  ex- 
perienced or  apprehended  from  the  use  of  a  distrusted 
medium;  and  that,  from -these  causes,  as  well  as  through 
an  increased  use  of  credit  allowing  the  mutual  cancella- 
tion of  obligations,  a  body  of  debased  coin,  not  in  excess 
of  the  amount  of  money  of  full  value  which  would,  under 
the  same  industrial  conditions,  have  circulated  freely  in 
the  community,  may  become  redundant  and  suffer  de- 
preciation. 

It  is  not,  however,  let  us  repeat,  at  all  in  the  nature  of 
the  case,  that  a  debased  coinage,  even  though  the  fact 
of  debasement  be  publicly  known,  should  depreciate,  if 
not  issued  in  excess.  We  freely  take  nickel  five-cent 
pieces,  the  material  of  which  is  worth  only  about  half  a 
cent,  or  silver  fifty-cent  pieces,  the  material  of  which  is 
worth  even  less  than  half-dollars  in  our  irredeemable 
paper  money,  because  we  look  confidently  to  have  others 
take  them  from  us  in  turn.  In  like  manner,  a  commu- 
nity may  continue  to  accept  worn  or  clipped  or  debased 
sovereigns  or  eagles  without  hesitation,  so  long  as  the 
habit  of  receiving  them  suffers  no  shock,  each  man  tak- 
ing them,  not  at  all  for  what  is  in  them,  but  for  what  he 
can  get  by  means  of  them. 


CHAPTEE  XL 

KECOINAGE. 

THE  frequent  allusions  which  have  been  made  to 
losses  sustained  by  the  coin  from  abrasion  in  circulation 
and  from  the  evil  arts  of  the  clipper  and  the  sweater, 
naturally  introduce  the  subject  of  Eecoinage. 

The  three  great  English  recoinages  to  which  I  shall 
refer  in  illustration  of  the  difficulties  besetting  a  refor- 
mation of  the  coin  of  a  country  when  it  has  become 
greatly  and  irregularly  debased  at  the  mint,  or  abraded 
in  circulation,  are  those  of  1560,  1696,  and  1774. 

In  each  of  these  instances,  the  volume  of  the  coin  had 
undoubtedly  been  increased  above  the  quantity  of  mon- 
ey of  full  weight  which  would  have  circulated ;  though 
in  the  latter  two  cases  at  least,  Mr.  Eicardo  asserts,1  not 
proportionally  to  the  debasement  of  quality.  Of  each 
instance  it  might  be  asserted  that  it  was  not  so  much  the 
fact  of  the  general  debasement  or  deterioration  of  the 
coin,  as  the  want  of  uniformity  therein,  which  induced 
confusion  in  trade.  Had  all  the  shillings  in  King  Will- 
iam's time  been  debased  to  groats,  exchanges  would 
have  been  effected  with  comparative  ease  and  equity. 
It  was  because  one  shilling  was  worth  twelve  pence, 
another  ten,  another  eight,  and  another  only  six,  or  even 

1  See  p.  192. 

18 


206  MONET. 

four,  that  disputes  arose  at  every  payment.  "It  is 
surely,"  says  Prof.  Tucker,1  "  of  far  less  inconvenience 
that  there  should  be  a  disparity  of  value  of  the  same 
coin  at  different  periods,  and  these  probably  distant, 
than  that  there  should  be  a  disparity  in  similar  coins 
circulating  at  the  same  tj*ne." 

The  first  recoinage  is  thus  described  by  Mr.  Froude  : 
"  In  their  first  moments  of  serious  leisure,  immediately 
after  the  Scotch  war,  in  September,  1560,  the  council  de- 
termined, at  all  hazards,  to  call  in  the  entire  currency  and 
supply  its  place  with  new  coin  of  a  pure  and  uniform 
standard.  Prices  of  all  kinds  could  then  adjust  them- 
selves without  further  confusion. 

"  The  first  necessity  was  to  ascertain  the  proportions  of 
good  and  bad  money  which  was  in  circulation.  A  public 
inquiry  could  not  be  ventured  for  fear  of  creating  a  panic, 
and  the  following  rudely  ingenious  method  was  suggested 
as  likely  to  give  an  approximation  to  the  truth  :  '  Some 
witty  person  was  to  go  among  the  butchers  of  London 
(and  to  them  rather  than  to  any  other,  because  they  re- 
tailed of  their  flesh  to  all  manner  of  persons  in  effect,  so 
that  thereby  of  great  likelihood  came  to  their  hands  of 
all  sorts  of  money  of  base  coin)  and  to  go  to  a  good  many 
of  them — 36  at  least, — and  after  this  manner,  because 
they  should  not  understand  the  meaning  thereof,  nor 
have  no  suspicion  in  that  behalf,  requiring  all  of  them  to 
put  all  the  money  that  they  should  receive  the  next  fore- 
noon by  itself,  and  likewise  that  in  the  afternoon  by  it- 
self, and  they  should  have  other  money  for  the  same, 
promising  every  one  of  them  a  quart  of  wine  for  their 
labors  because  that  there  was  a  good  wager  laid  whether 
they  received  more  money  in  the  afternoon ;  whereof  nine 

1  Money  and  Banks,  p.  99. 


THE  RECOINAGE  OF  1560.  2.07 

score  pounds  being  received  of  the  butchers  after  the 
manner  aforesaid,  being  all  put  together,  then  all  the 
shillings  of  three  oz.  fine  and  under,  but  not  above, 
should  be  tried  and  called  out,  as  well  counterfeits  after 
the  same  stamp  and  standard  as  others ;  and  after  the 
rest  of  the  money  might  be  perused  and  compared  one 
with  another.' 

"Either  by  this  or  some  other  plan,  the  worst  coin  in 
circulation  was  found  to  be  about  a  fourth  of  the  whole, 
while  the  entire  mass  of  base  money  of  all  standards  was 
guessed  roughly  at  £1,200,000.  How  to  deal  with  it  was 
the  next  question. 

"Sir  Thomas  Stanley  offered  several  schemes  to  the 
choice  of  the  government. 

"1.  The  testers,  worse  and  better  together,  might  be 
called  down  from  sixpence  to  fourpence ;  a  period  might 
be  fixed  within  which  they  must  be  brought  to  the  mint, 
and  paid  for  at  that  price.  The  £1,200,000  would  be 
bought  in  for  £800,000 ;  the  bullion  which  it  contained 
being  recoined  and  re-issued  at  11  oz.  fine  would  be 
worth  £837,500  ;  and  the  balance  of  £37,500  in  favor  of 
the  government,  together  with  the  value  of  the  alloy, 
would  more  than  cover  the  expenses  of  the  process.  If 
the  queen  wished  to  make  a  better  thing  of  it,  the  worst 
money  might  be  sent  to  Ireland1  as  the  general  dirt-heap 
for  the  outcasting  of  England's  vileness. 

1  "  From  1296  to  1355,  the  coins  of  England  and  Scotland  were  of 
the  same  weight  and  purity  ;  but  at  the  last  mentioned  epoch  the 
standard  of  Scotch  money  was,  for  the  first  time,  sunk  below  that  of 
England ;  and  by  successive  degradations  the  value  of  Scotch  money, 
at  the  union  of  the  Crowns  in  1600,  was  only  a  twelfth  part  of  the 
value  of  the  English  money  of  the  same  denomination.  It  remained 
at  this  point  till  the  union  of  the  kingdoms  canceled  the  separate 
coinage  of  Scotland.  The  gold  and  silver  coins  of  Ireland  have  been 
for  a  considerable  period  the  same  as  those  of  Great  Britain  •  but 


208  MONEY. 

"2.  The  bad  coin  might  be  called  in  simply  and  paid 
for  at  the  mint  according  to  its  bullion  value,  a  percent- 
age being  allowed  for  the  refining. 

"3.  If  the  queen  would  run  the  risk,  she  might  relieve 
her  subjects  more  completely  by  giving  the  full  value  of 
fourpence-halfpenny  for  the  sixpence,  three  halfpence 
for  the  half-groat,  and  so  on  through  the  whole  coinage, 
allowing  three-quarters  of  the  nominal  value,  and  taking 
her  chance — still  with  the  help  of  Ireland — of  escaping 
unharmed. 

"  Swiftness  of  action,  resolution,  and  a  sufficient  num- 
ber of  men  of  probity  to  receive  and  pay  for  the  moneys 
all  over  the  country,  were  the  great  requisites.  The  peo- 
ple were  expected  to  submit  to  the  further  loss  without 
complaint,  if  they  could  purchase  with  it  a  certain  return 
to  security  and  order.  Neither  of  Stanley's  alternatives 
were  accepted  literally.  The  standard  for  Ireland  had 
always  been  something  under  that  of  England.  But  the 
queen  would  not  consent  to  inflict  more  suffering  on  that 
country  than  she  could  conveniently  help.  The  Irish 
coin  should  share  in  the  common  restoration,  and  be 
brought  back  to  its  normal  proportions.  On  the  27th  of 
September  the  evils  of  an  uneven  and  vitiated  currency 
were  explained  by  proclamation.  The  people  were  told 
that  the  queen  would  bear  the  cost  of  refining  and  re- 
coining  the  public  moneys,  if  they  on  their  side  would 
bear  cheerfully  their  share  of  the  loss ;  and  they  were 
invited  to  bring  in  and  pay  over  to  persons  appointed  to 
receive  it  in  every  market  town  the  impure  silver  in  their 
hands. 

until  1825  they  were  nominally  rated  8£  per  cent,  higher.  This 
difference  of  valuation,  which  was  attended  with  considerable  incon- 
veniences, was  put  to  an  end  by  the  Act  6  Geo.  IY,  c.  79,  which 
assimilated  the  currency  throughout  the  empire." — [J.  R.  McCullcch, 
Commercial  Dictionary.] 


THE  RECOINAGE  OF  1696.  209 

"For  the  three  better  sorts  of  tester  the  Crown  wduld 
pay  the  full  value  of  fourpence-halfpenny  and  for  the 
half-groats  and  pence  in  proportion.  For  the  fourth  and 
most  debased  kind,  which  was  easily  distinguishable,  it 
would  pay  twopence-farthing.  To  stimulate  the  collec- 
tion, a  bounty  of  threepence  was  promised  on  every 
pound's  worth  of  silver  brought  in.  Refiners  were  sent 
for  from  Germany ;  the  Mint  at  the  Tower  was  set  to 
work  under  Stanley  and  Sir  Thomas  Fleetwood,  and  in 
nine  months  the  impure  stream  was  washed  clean,  and 
a  silver  coinage  of  the  present  standard  was  circulating 
once  more  throughout  the  realm. 

"Either  a  large  fraction  of  the  base  money  was  not 
brought  in,  or  the  estimate  of  the  quantity  in  circulation 
had  been  exaggerated.  There  was  a  balance  in  favor  of 
the  Crown  of  £95,135 ;  but  the  cost  of  collection,  the  pre- 
miums and  other  collateral  losses  reduced  the  margin  to 
£49,776  95.  3d  £35,686 15s.  6d  was  paid  for  the  refining 
and  reminting,  and  when  the  whole  transaction  was  com- 
pleted, Elizabeth  was  left  with  a  balance  in  her  favor  of 
£14,079  13s.  9d"— [History  of  England,  vii,  467.] 


The  second  great  recoinage  was  that  accomplished  in 
the  reign  of  William  III,  when  Montague  was  at  the  head 
of  the  Treasury  and  Isaac  Newton  was  Master  of  the 
Mint.  This  great  political  and  financial  event  is  familiar 
to  every  reader,  through  the  picturesque  description 
given  by  Macaulay  in  his  21st  chapter.  "In  the  autumn 
of  1695,  it  could  hardly  be  said  that  the  country  pos- 
sessed, for  practical  purposes,  any  measure  of  the  value 
of  commodities.  It  was  a  mere  chance  whether  what 
was  called  a  shilling,  was  really  tenpence,  sixpence,  or  a 
groat" 


210  MONEY. 

The  officers  of  the  exchequer  weighed  57,200  pounds 
of  hammered  money,  which  had  recently  been  paid  in. 
The  weight  ought  to  have  been  above  220,000  oz.;  it 
proved  to  be  under  114,000  oz.  Three  eminent  London 
goldsmiths  were  invited  to  send  a  hundred  pounds  each 
in  current  silver,  to  be  tried  by  the  balance.  Three  hun- 
dred pounds  ought  to  have  weighed  above  1200  oz.  The 
actual  weight  proved  to  be  624  oz.  It  was  found  that  a 
hundred  pounds,  which  should  have  weighed  above  400 
oz.,  did  actually  weigh,  at  Bristol,  240  oz. ;  at  Cambridge, 
203;  at  Exeter  180;  and  at  Oxford,  116.1 

"It  may  be  doubted,"  continues  the  eloquent  historian, 
"whether  all  the  misery  which  had  been  inflicted  on  the 
English  nation  in  a  quarter  of  a  century  by  bad  kings, 
bad  ministers,  bad  parliaments,  and  bad  judges,  was 
equal  to  the  misery  caused  in  a  single  year  by  bad  crowns 
and  bad  shillings.  .  .  . 

"  The  evil  was  felt  daily  and  hourly,  in  almost  every 
place,  and  by  almost  every  class ;  in  the  dairy  and  on 
the  threshing-floor ;  by  the  anvil  and  by  the  loom ;  on 
the  billows  of  the  ocean  and  in  the  depths  of  the  mine. 

"Nothing  could  be  purchased  without  a  dispute.  Over 
every  counter  there  was  wrangling  from  morning  to 
night.  The  workman  and  his  employer  had  a  quarrel  as 
regularly  as  the  Saturday  came  round.  On  a  fair-day 
or  a  market-day  the  clamors,  the  reproaches,  the  taunts, 
the  curses  were  incessant,  and  it  was  well  if  no  booth 
was  overturned  and  no  head  broken.  No  merchant 
would  contract  to  deliver  goods  without  making  some 
stipulation  about  the  quality  of  the  coin  in  which  he 

1  "  A.  V."  in  his  letter  to  Lord  Grodolphin,  gives  the  results  of  nu- 
merous trials  made  by  him  on  the  current  coin.  Macaulay  appears 
to  draw  his  figures  from  this  source,  though  the  correspondence  is 
not  complete. 


THE  RECOINA  GE  OF  1696.  211 

was  to  be  paid.  Even  men  of  business  were  often  be- 
wildered by  the  confusion  into  which  all  pecuniary 
transactions  were  thrown.  The  simple  and  the  careless 
were  pillaged  without  mercy  by  extortioners  whose  de- 
mands grew  even  more  rapidly  than  the  money  shrank. 
The  price  of  the  necessaries  of  life,  of  shoes,  of  ale,  of 
oatmeal,  rose  fast.  The  laborer  found  that  the  bit  of 
metal,  which,  when  he  received  it,  was  called  a  shilling, 
would  hardly,  when  he  wanted  to  purchase  a  pot  of  beer 
or  a  loaf  of  rye-bread,  go  as  far  as  sixpence. 

"  Where  artisans  of  more  than  usual  intelligence  were 
collected  in  great  numbers,  as  in  the  dock-yard  of  Chat- 
ham, they  were  able  to  make  their  complaints  heard  and 
to  obtain  some  redress;  but  the  ignorant  and  helpless 
peasant  was  cruelly  ground  between  one  class  which 
would  give  money  only  by  tale,  and  another  which  would 
only  take  it  by  weight." 1 

It  was  to  remove  this  evil,  which  had  gone  so  far  as  to 

1  Dr.  Hunter,  in  his  admirable  work  "  The  Annals  of  Rural  Ben- 
gal," has  strikingly  shown  the  suffering  of  the  poorer  classes  through 
the  use  of  an  irregularly  debased  money.  "  The  coinage,  the  refuse 
of  twenty  different  dynasties  and  petty  potentates,  had  been  clipped, 
drilled,  filed,  scooped  out,  sweated,  counterfeited  and  changed  from 
its  original  value,  by  every  process  of  debasement  devised  by  Hindu 
ingenuity  during  a  space  of  four  hundred  years.  The  smallest  coin 
could  not  change  hands  without  an  elaborate  calculation  as  to  the 
amount  to  be  deducted  from  its  nominal  value.  This  calculation,  it 
need  hardly  be  said,  was  always  in  favor  of  the  stronger  party.  The 
treasury  officers  exacted  an  ample  discount  from  the  landholders — 
a  discount  which,  when  Bengal  passed  under  British  rule,  amounted 
to  3  per  cent,  after  a  coin  had  been  in  circulation  a  single  year,  and 
to  5  per  cent,  after  the  second  year,  although  no  actual  depreciation 
had  taken  place.  The  landholder  demanded  a  double  allowance 
from  the  middleman,  and  the  middleman  extorted  a  quadruple  allow- 
ance from  the  unhappy  tiller  of  the  soil.  In  a  long,  indignant  letter 
on  the  illegal  cesses  under  which  the  cultivator  groaned,  Mr.  Keating 


212  MONEY. 

paralyze  trade  and  threaten  the  stability  of  the  king- 
dom, that  the  great  re  coinage  was  effected  under  the 
masterly  administration  of  Newton.  The  loss  on  the 
clipped  and  worn  pieces  was  borne  by  the  nation,  the 
deficiency,  exclusive  of  the  actual  cost  of  recoinage, 
amounting,  according  it)  Mr.  Bosanquet  [Practical  Ob- 
servations, p.  37n],  to  £2,415,140. 

Of  the  wild  excitement  or  painfully  suppressed  anx- 
iety with  which,  according  to  the  temperaments  of  indi- 
viduals, the  nation  awaited  the  result  of  this  great 
experiment  by  which  the  whole  coin  of  the  realm  was 
withdrawn  and  re-issued,  the  reader  cannot  have  forgot- 
ten Macaulay's  most  impressive  account. 

In  the  recoinage  of  1774 1  gold  only  was  withdrawn, 
silver,  being  no  longer  the  principal  money,  was  allowed 

singles  out  the  '  batta,'  or  exchange  on  old  rupees,  as  the  most  cruel 
because  the  least  denned.  No  recognized  standard  existed  by  which 
to  limit  the  rapacity  of  the  treasury  officers.  The  government  held 
them  responsible  for  remitting  the  net  revenue  in  full,  and  left  them 
to  deduct  such  a  proportion  from  each  coin  as  they  deemed  sufficient 
to  cover  all  risk  of  short  weight.  Moreover,  so  great  was  the  variety 
of  coin  in  use,  that  they  claimed  a  further  discretion  as  to  what  they 
would  receive  at  all.  Cowries  (shells),  copper  coins  of  every  denom- 
ination, lumps  of  copper  without  any  denomination  whatever,  pieces 
of  iron  beaten  up  with  brass,  thirty-two  different  kinds  of  rupees, 
from  the  full  sicca  to  the  viziery,  hardly  more  than  half  its  value, 
pagodas  of  various  weights,  dollars  of  different  standards  of  purity, 
gold  mohurs  worth  from  25  to  32  shillings  each,  and  a  diversity  of 
Asiatic  and  European  coins  whose  very  names  are  now  forgotten. 
At  some  treasuries,  cowries  were  taken;  at  others  they  were  not. 
Some  collectors  accepted  payment  in  gold;*  others  refused  it;  others 
again  could  not  make  up  their  minds  either  way ;  and  the  miserable 
peasant  never  knew  whether  the  coin  for  which  he  sold  his  crop 
would  be  of  any  use  to  him  when  he  came  to  pay  his  rent." — [Pp. 
293-5.] 

1  So  called;  Chalmers  says  it  began  August  1773  and  ended  in 
1777. — [Considerations,  etc.,  p.  02.] 


"  THE  ANCIENT  STANDARD."  213 

to  remain  in  its  debased  condition.  Mr.  Huskisson,  in 
his  Bullion  pamphlet,  states  the  average  reduction  of  the 
goid  coin,  in  1773,  at  from  four  to  five  per  cent. 


The  Act  of  1696  brought  out  a  very  full  discussion  of 
the  whole  system  of  recoinage.  "When  it  is  said  that 
Montague,  Somers,  Isaac  Newton,  and  John  Locke  par- 
ticipated in  the  high  debate,  it  is  needless  to  say  that 
little  has  since  been  added  to  the  philosophy  of  the  sub- 
ject. 

Two  issues  are  involved  in  a  general  recoinage.  First, 
shall  the  ancient  standard  be  restored  ?  We  shall  see 
this  question  arising  in  1819,  in  connection  with  the  re- 
sumption of  specie  payments  in  England ;  and  we  find 
the  same  issue  presented  in  our  own  day,  after  a  suspen- 
sion of  sixteen  years. 

The  argument  against  a  return  to  "the  ancient  right 
standard,"  to  use  the  proud  phrase  of  the  English  stat- 
ute, is  not  wholly  a  plea  for  repudiation. 

It  is  urged  in  its  behalf  that,  when  the  debasement  of 
the  coin  has  been  long  in  progress,  prices  have  adapted 
themselves,  painfully  and  irregularly  indeed,  to  the 
state  of  the  coin;  that  contracts  for  goods,  for  rents,  for 
interest,  etc.,  have  been  based  on  existing  prices  ;  and 
that  an  abrupt  return  to  the  ancient  standard  will  work 
great  injustice  to  all  debtors  who  will  be  obliged  to  meet 
their  obligations  in  a  money  which  has  suddenly  become 
more  valuable.  We  shall  have  to  meet  this  question 
again  in  connection  with  the  Eesumption  Act  of  1819. 

In  1696  Mr.  Lowndes,  the  Secretary  to  the  Treasury, 
stood  as  the  champion  of  the  scheme1  of  lowering  the 

1  He  proposed  that  the  pound  of  standard  silver  be  coined  into  77 
instead  of  62  shillings,  which  would  have  effected  a  reduction  of 
nearly  one-fourth. 


214  MONEY. 

standard  to  meet  the  condition  of  the  money  actually  in 
circulation;1  Locke  as  the  champion  of  the  ancient 
standard.  Of  the  writings  of  this  great  philosopher  on 
this  occasion  Macaulay  remarks:  "It  may  well  be 
doubted  whether,  in  any  of  his  writings,  even  in  those 
ingenious  and  deeply  meditated  chapters  on  language, 
which  form  perhaps  the  most  valuable  part  of  his  '  Es- 
say on  the  Human  Understanding,'  the  force  of  his 
mind  appears  more  conspicuously." 

The  second  issue  that  arose  in  connection  with  the 
recoinage  of  1696  was  this:  conceding  the  maintenance 
of  the  ancient  standard,  on  whom  should  the  loss  by 
light  coin  fall? 

On  this  point  Prof.  Thorold  Eogers's  objection  to  the 
plan  adopted  in  1696,  must  be  deemed  wholly  insuffi- 
cient : 

"As  a  matter  of  abstract  justice,  it  is  clear  that  the 
act  of  coinage,  being  a  service  which  the  government 
does  for  the  public,  and  being  a  certificate  of  the  fine- 
ness2 contained  in  the  pieces  issued,  the  Exchequer 
should  not  be  called  on  to  bear  the  loss  of  wear,  still 
less,  losses  by  fraud." — [Hist.  Gleanings,  i,  30.] 

Now,  to  say  that  the  government  should  not  bear  the 
cost  of  recoinage  because  it  bears  the  cost  of  coinage  : 
is  not  this  much  like  saying  that  government  should  not 
repair  roads  because  it  has  in  the  first  instance  to  make 
them? 

1  In  anticipation  of  the  recoinage  of  1774,  Mr.  Harris,  in  his  very 
able  essay  on  "  Money  and  Coins,"  proposed  to  reduce  the  guinea  to 
20  shillings,  to  meet  the  average  deterioration  of  the  existing  body 
of  coin,  which  was  estimated  to  be  between  4  and  5  per  cent. 

2  A  singular  slip ;  the  stamp  on  the  coin  is  a  certificate  both  of  the 
fineness  and  of  the  weight.     This  fact  turns  Prof.  Rogers' s  argument 
against  himself. 


THE  CHARGE  OF  RECOINAGE.  215 

But  there  is  a  deeper  objection  to  government  throw- 
ing-off  the  cost  of  recoinage.  It  is  that,  while  the  ser- 
vice of  which  Prof.  Rogers  speaks  was  rendered  to  the 
public  at  large,  the  accidental  present  holder  of  the  coin 
is  made  to  pay  the  entire  cost  of  that  service  from  the 
period  of  issue,  extending  perhaps  through  a  score  of 
years.1  Hundreds  of  persons  have  handled  the  coin 
and  helped  to  abrade  it :  one  alone,  he  in  whose  hands 
it  happens  to  be  found  at  the  date  of  the  proclamation, 
is  made  to  suffer  the  entire  loss. 

But  it  is  not  on  grounds  of  justice  alone  that  most  of 
the  governments  of  Europe  have  adopted  the  principle 
that  the  charge  of  recoinage  shall  fall  upon  the  public. 
Considerations  of  policy  also  require  it.  Great  Britain, 
whose  government  still  stands  out  against  the  princi- 
ple, suffers  from  a  steady  deterioration  of  its  coin,  in 
consequence  of  the  reluctance  of  holders  to  submit  to 
loss2  by  bringing  light  sovereigns  to  the  mint.  The 
Bank  of  England  and  its  branches,  with  a  few  Irish 
banks,  alone  comply  with  the  requirement  to  cut  light 
pieces.  Other  banks  and  dealers  in  money,  as  well  as 
tradesmen  generally,  throw  the  coin  back  into  circula- 
tion. 

Prof.   Jevons   estimates3   that,   in   1868,  there   were 

1  "  The  loss  from  natural  abrasion,"  says  Mr.  Tooke,  "  should  be 
repaid  by  the  government,  and  not  by  the  last  holder,  for  the  rea- 
son that  it  has  occurred  while  the  coins  were  performing  the  func- 
tion of  a  circulating  medium." 

2  Mr.  Nicholson  states  that  in  the  three  years  ending  March  31, 
1872,  gold  coins  to  the  nominal  value  of  £1,975,716  were  cut  by  the 
Bank ;    the  loss  sustained  by  the  owners  of  the  coin  amounted  to 
£25,415,  being  -fa  of  the  nominal  value. — [Science  of  Exchanges, 
p.  99.] 

8  Statistical  Journal,  xxxi;  433-4. 


216  MONEY. 

about  20,000,000  light  sovereigns  (out  of  a  total  of  64,- 
500,000,  at  the  most,  in  circulation)  and  £5,600,000,  in 
value,  of  light  half-sovereigns,  circulating  in  defiance  of 
law.  In  some  agricultural  districts  the  proportion  of 
light  sovereigns  rises  to  44  per  cent.  The  average  defi- 
ciency in  weight  of  the  sovereigns  is  computed  by  Prof. 
Jevons  at  0.53  per  cent;  that  of  the  half-sovereigns  at 
more  than  twice  as  much. 


CHAPTEK  XII. 

THE  CONCURRENT  CIRCULATION  OF  TWO  METALS. 

IN  referring  to  the  English  coinage,  it  has  been  said 
that  since  1666  no  seigniorage  has  been  exacted. 

This  assertion  holds  true,  however,  since  1816,  only 
of  the  principal,  or  gold,  money  of  the  realm.  On  sil- 
ver and  bronze  coin,  the  seigniorage  charged  by  the 
British  government  is  considerable. 

"  Standard  silver,"  wrote  Prof.  Jevons  in  1874,  "  can 
usually  be  bought  by  the  mint  for  5  shillings  [gold]  per 
standard  ounce.  It  is  issued  to  the  public  [in  coin]  at 
the  rate  of  5s.  6d.  per  oz.,  so  that  the  government  re- 
ceives a  seigniorage  of  at  least  9  per  cent,  on  the  nom- 
inal value  of  the  coin  issued." 

"  The  average  coinage  of  silver  at  the  English  mint," 
he  continues,  "  during  the  last  ten  years  has  been  £546,- 
580,  upon  which  the  seigniorage  would  be  about  £49,- 
200  per  annum.  On  the  other  hand,  the  Mint  has  to 
buy  back  worn  silver  coinage  at  its  nominal  value  ;  and 
in  recoining  such  money  there  is  a  loss,  which,  on,  the 
average  of  the  last  ten  years  (1864-73),  has  been  £16,- 
700,  leaving  a  net  annual  profit  of  £32,500,  no  account 
being  taken  of  the  cost  of  the  mint  establishment." 

"  At  present,"  he  adds,  "  the  price  of  silver  is  not 
above  4s.  lOd  per  oz.,  so  that  the  seigniorage  is  about 
12  per  cent.,  and  the  profit  on  coining  silver  proportion- 
19 


218  MONEY. 

ately  greater." — [Money  and  the   Mechanism  of  Ex- 
change, pp.  163-4.] 

On  the  smaller  coins  of  the  kingdom  a  much  larger 
profit,  proportionately,  is  made  by  the  government. 
"The  bronze  of  which  the  pence  are  made  is  worth,  ac- 
cording to  Mr.  Seyd,  IGd  per  troy  pound,  so  that  the 
metallic  values  of  the  coins  are  almost  exactly  one- 
fourth  part  of  their  nominal  values." — [Ibid.,  p.  110.] 
That  is,  the  British  penny  contains  one  farthing's  worth 
of  metal. 

The  primary  object  of  this  seigniorage  on  silver  and 
bronze  coins,  in  England,  is  not  the  profit  to  be  derived 
from  the  coinage:  but  the  establishment  of  a  "single 
standard  " — in  this  case,  gold ;  and  the  remitting  of  silver 
to  the  position  of  a  subsidiary  coinage,  to  be  issued  in 
arbitrary  amounts  by  the  government,  and  to  be  legal 
tender1  only  for  strictly  limited  and  inconsiderable 
sums.  Money  thus  issued  is  called  Billon  (from  the 
French)  or  Token-money.  Even  among  the  nations 
which  assume  to  keep  both  gold  and  silver  in  circula- 
tion, the  policy  of  making  the  smaller  coins,  even  the 
smaller  silver  coins,  of  less  than  their  nominal  value, 
is  now  generally  adopted.2  Russia  almost  alone  pre- 
serves the  full  actual  metallic  value  of  her  silver"  coins, 
down  to  the  smallest.  Economically  speaking,  what 
is  the  relation  of  token-money  to  standard-money  ? 

Only  two  points  under  this  head  require  to  be  noted. 

1  In  Great  Britain  silver  coin  is  not  a  legal  tender  above  40  shil- 
lings ;  pence  are  a  legal  tender  in  payments  to  the  amount  of  1  shil- 
ling only ;  half -pence  and  farthings  to  the  extent  of  6  pence  only. 

2  The  Report  of  Mr.  Q-6'schen's  Committee  on  the  Depreciation  of 
Silver  (1876),  and  Mr.  Ernest  Seyd's  treatise  on  "  Bullion  and  For- 
eign Exchanges,"  contain  full  information  respecting  the  billon  of  the 
world. 


TOKEN-MONEY.  219 

The  first  concerns  the  complaint  that  the  debasement 
of  the  coin  in  which  the  wages  of  common  labor  are 
paid,  is  an  injury  to  the  working  classes.  For  example, 
a  laborer  who  is  paid  on  Saturday  twenty-two  coined 
shillings  for  his  week's  work,  in  reality  gets  less  than  a 
sovereign's  worth  of  silver ;  the  girl  who  is  nominally 
paid  tenpence  for  her  day's  work  in  the  mill  gets  only 
about  a  threepence  worth  of  copper.  Here,  it  is  said, 
is  a  manifest  injustice.  The  wealthy  and  well-to-do  re- 
ceive their  incomes  in  the  principal  coin  of  the  country 
which  is  of  full  weight  and  fineness ;  the  poor  are  paid 
in  coins  which  contain  only  a  part,  and  perhaps  only 
a  small  part,  of  the  metal  which  would  be  worth  the 
sum  for  which  they  are  made  a  tender  by  law.  This 
complaint,  sometimes  heard  among  laborers,  was  re- 
cently given  a  wider  hearing  through  Colonel  Tomline, 
a  member  of  the  British  Parliament.  The  answer  of 
Mr.  Hubbard  appears  to  be  conclusive,  so  long  as  such 
billon  or  token-money  is  not  issued  in  excess. 

"  It  is  quite  true,"  says  Mr.  Hubbard,  "  that  silver, 
rather  than  gold,  is  the  medium  through  which  the 
wages  of  the  laboring  classes  are  paid;  but  to  show 
that  the  laboring  classes  are  injured  by  the  Mint  regu- 
lations, it  must  be  demonstrated  that  the  shilling  they 
now  receive  commands  a  smaller  quantity  of  the  neces- 
saries of  life  than  would  a  shilling  coined  as  an  integral 
measure  of  value.  The  shilling  now  circulating  derives 
its  purchasing  power,  not  from  the  silver  it  contains, 
but  from  its  being  by  law  a  twentieth  part  of  a  pound, 
—the  golden  standard.  All  prices,  wholesale  or  retail, 
whether  of  a  bullock  or  a  beefsteak,  of  a  quarter  of 
wheat  or  a  loaf  of  bread,  are  computed  upon  a  gold  val- 
uation. The  artisan's  shilling  is  intrinsically  the  twen- 
ty-second part  of  a  pound,  his  penny  but  the  four  hun- 


220  MONEY. 

dred  and  eightieth  part  of  a  pound,  but  how  do  these 
facts  affect  his  interest,  if  he  can  always,  with  twenty 
shillings  or  two  hundred  and  forty  pence,  secure  the 
value  of  a  pound?  " 


But  suppose  billon  or  token-money  to  be  issued  in 
excess  of  the  real  requirements  of  trade,  what  will  be 
the  result?  Depreciation  of  course;  but  how  will  this 
affect  the  poorer  classes?  how  will  it  influence  retail 
prices? 

I  do  not  see  how  such  an  excess  of  small  coin  can  in- 
fluence peculiarly  the  condition  of  the  poorer  classes, 
except  through  the  operation  of  the  principle  expressed 
by  Eoscher,  as  quoted  in  the  chapter  on  the  Money- 
function.  Were  the  members  of  the  community  eco- 
nomically on  equal  terms,  all  would  suffer  inconven- 
ience, but  all  would  suffer  alike.  If,  for  example,  there 
were  such  a  flood  of  shillings  issued  by  the  English 
Mint,  that  those  who  received  them  in  trade  found  it 
difficult  to  get  rid  of  them,1  and  it  became  necessary  to 
submit  to  a  discount,  the  tradesmen  would,  it  is  true, 
be  compelled  to  charge  the  workman  more  for  grocer- 
ies, meats  and  vegetables,  which  were  to  be  paid  for  with 

1  Dr.  Hunter  says  of  India :  "  Copper  coins,  when  transferred  in 
large  quantities  were,  and  are  to  the  present  day,  sold ;  that  is  to 
say,  they  do  not  pass  at  their  full  denominational  value,  but  at  a 
lower  rate,  the  proportion  deducted  depending  on  the  locality,  and 
the  comparative  demand  for  silver  or  copper  coins.  Indeed,  the 
tendency  of  copper  coins  to  accumulate  in  the  district  treasuries  still 
forms  a  subject  of  frequent  official  correspondence,  and  a  percentage 
is  in  some  places  allowed  to  the  collectors  of  the  assessed  taxes — 
such  as  the  municipal  police — for  converting  the  petty  copper  pay- 
ments into  rupees." — [Annals  of  Rural  Bengal,  p.  298.] 


TOKEN-MONET.  221 

shillings ;  but  on  the  other  hand,  the  employer,  being 
able  to  exchange  at  a  premium  the  gold  or  bank-notes 
which  he  received  from  the  sales  of  his  goods,  for  shil- 
lings with  which  to  pay  his  workmen,  would  be  able  to 
give  an  advance  of  wages  to  correspond.  The  whole 
community  would  doubtless  suffer  an  impairment  of 
industrial  and  commercial  activity  from  such  an  ob- 
struction ;  but  rich  and  poor  would  share  this  loss  alike. 
If,  however,  the  community  were  divided,  as  there  is 
reason  to  believe  every  community  is,  into  the  econom- 
ically weak  and  the  economically  strong,  peculiar  disad- 
vantages might  be  experienced  by  certain  classes.  It 
is  more  than  probable  that,  in  the  instance  given,  while 
the  tradesmen  would  put  up  their  prices  promptly  and 
perhaps  further  than  was  strictly  necessary  to  make 
themselves  good  for  the  discount  to  which  the  shilling 
had  become  subject,  the  employer  would  advance  wages 
tardily  and  partially. 


What  would  be  the  effect  on  prices  of  a  redundancy 
of  token-money?  Speaking  of  the  effort  of  the  Secre- 
tary of  the  United  States  Treasury  to  push  out  the  so- 
called  "fractional  currency,"  Prof.  Sumner  says:1  "In 
1872  this  issue  was  forced  up  to  between  $40,000,000 
and  $50,000,000,  producing  a  redundancy  and  enhancing^ 
reto/iLprice^'  The  suggestion  is  an  interesting  one.  Is 
it  possible  that  a  redundancy  of  small  money  should 
produce  any  peculiar  effect  on  retail  prices?  I  see  but 
two  ways  in  which  this  can  take  place.  First,  retail 
prices  would  have  to  be  advanced  to  the  extent  of  any 
discount  actually  submitted  to  by  the  dealers  in  turning 

1  Hist.  Am.  Currency,  p.  205. 


222  MONEY. 

the  small-money  which  they  had  received  from  their 
customers  into  the  large-money  in  which  they  were  to 
pay  the  merchants  and  manufacturers  from  whom  they 
purchased  their  goods.  But  was  there  in  1872  any  dis- 
count on  "fractional  currency,"  ordinarily  submitted  to 
by  retail  dealers  ?  I  cannot  learn  that  there  was. 

The  only  other  way  in  which  a  redundancy  of  small- 
money  could  produce  an  enhancement  of  retail  prices, 
specially,  which  occurs  to  me,  is  through  aggravating 
what  Prof.  Cairnes  characterizes  as  "the  excessive  fric- 
tion" of  retail  trade.1  The  effect  of  an  excess  of  small- 
money  in  this  direction  might  easily  be  very  consider- 
able, increasing  the  disadvantage  which  the  laboring 
classes  always  suffer,  through  poverty,  ignorance  and 
inertia,  in  the  purchase  of  articles  for  domestic  consump- 
tion. 

SINGLE  OE  DOUBLE  STANDARD  ? 

As  to  the  expediency  of  the  issue  of  bronze  and  cop- 
per coins,  and  even  of  the  minor  silver  coins,  with  a 
real  value  below,  it  may  be  much  below,  the  mint-price, 
there  is  no  great  difference  of  opinion  among  economists ; 
but  the  policy  adopted  in  Great  Britain,  by  the  Act  of 
1816,  of  restricting  to  one  metal  the  coinage  of  full 
value  and  of  unlimited  legal  tender,  has  been  very 
warmly  disputed. 


1  "  Competition  in  retail  markets,"  writes  Prof.  Cairnes,  "  is  con- 
ducted under  conditions  which  may  be  described  as  of  greater  fric- 
tion than  those  which  exist  in  wholesale  trade." 

Mr.  Mill  says:  "Retail  price,  the  price  paid  by  the  actual  con- 
sumer, seems  to  feel  slowly  and  imperfectly  the  effect  of  competition, 
and  where  competition  does  exist,  it  often,  instead  of  lowering  prices, 
merely  divides  the  gain  among  a  greater  number  of  Sealers." 


SINGLE  OR  DOUBLE  STANDARD?  223 

We  have  now  readied  the  ground  of  the  controversy 
respecting  a  Single  or  a  Double  Standard  for  Deferred 
Payments  :  that  controversy  to  which  Prof.  Jevons  has 
applied  the  phrase,  "  The  Battle  of  the  Standards." 

I  need  not  say  that  this  is  the  question  in  the  whole 
field  of  political  economy  which  at  present  awakens  the 
greatest  popular  interest  and  commands  the  most  stren- 
uous exertions  of  professed  economists.  Unfortunately, 
prejudice  and  passion  enter  so  largely  into  the  contro- 
versy as  to  obscure  the  true  issue  in  the  public  appre- 
hension, and  even  not  a  little  in  the  minds  of  the  con- 
testants. Invective  has  taken  the  place  of  investi- 
gation ;  and  writers  of  repute  set  themselves  about 
the  work  of  refuting  and  holding  up  to  ridicule  state- 
ments which  the  representatives  of  the  opposing  party 
would  not  for  a  moment  accept  as  embodying  their 
views. 

My  only  object  here  will  be  to  set  fairly  forth,  with- 
out prejudice,  the  real  issue,  and  indicate  the  econom- 
ical principles  upon  which  it  must  be  decided.  I  shall 
hope  to  place  side  by  side  the  arguments  of  the  two  par- 
ties to  the  controversy  in  such  a  manner  that  either 
might  accept  the  representation  of  its  own  views  without 
qualification,  much  more,  without  challenge. 

The  position  of  the  Mono-metallists,  or  the  advocates 
of  a  Single  Standard,  may  be  given  in  the  words  of  Mr. 
Nicholson : 

"We  cannot  keep  gold  standard  coins  and  silver 
standard  coins  in  circulation  side  by  side  in  any  one 
country  for  a  continuance,  because  the  value  of  one 
metal  when  measured  in  the  other  is  sure  to  fluctuate  ; 
and,  as  all  standard  coins  are  but  so  many  stamped  in- 
gots of  standard  metal,  people  will  always  select  the 
metal  which  costs  them  least  when  they  have  a  payment 


224  MONEY. 

to  make  ;  so  that  if  more  can  be  got  for  a  given  quantity 
of  one  metal  in  foreign  countries  than  can  be  got  for  its 
legal  equivalent  in  the  other  metal,  supposing  them  to 
be  circulating  as  stamped  ingots  side  by  side,  the  metal 
for  which  the  most  can  be  got  will  be  exported,  because 
of  the  two  it  is  the  cheapest  mode  of  payment.  For  in- 
stance, if  eleven  rupees'  worth  of  goods  can  be  got  in 
England  for  a  sovereign,  which  is  circulating  side  by 
side  with  rupees  as  ten  in  British  India,  the  sovereign 
will  be  exported  and  the  rupees  will  be  kept  in  India. 

"  On  the  other  hand,  if  one  sovereign's  worth  of  goods 
can  be  got  in  England  for  ten  rupees,  when  rupees  are 
circulating  at  the  rate  of  eleven  to  one  sovereign,  side 
by  side  with  sovereigns  in  India,  the  rupees  will  be  ex- 
ported and  the  sovereign  will  be  kept  in  that  country." 
— [Science  of  Exchanges,  p.  107.] 

The  treatment  of  the  two  metals  in  the  coinage  of 
England  is  thus  narrated  by  Mr.  McCulloch.  "  From 
1257 l  to  1664,  the  value  of  gold  coins  was  regulated  by 
proclamation,  or,  which  is  the  same  thing,  it  was  or- 
dered that  the  gold  coins  then  current  should  be  taken 
as  equivalent  to  certain  specified  sums  of  silver.  From 
1664  down  to  1717,  the  relation  of  gold  to  silver  was  not 
fixed  by  authority,  and,  silver  being  then  the  only  legal 
tender,  the  value  of  gold  coins  fluctuated  according  to 
the  fluctuations  in  the  relative  worth  of  the  metals  in 
the  market.  In  1717  the  ancient  practice  was  again  re- 

1  "  During  the  13th  Century,"  says  Prof.  Rogers,  "  and  the  earlier 
portion  of  the  14th,  the  English  currency  was  entirely  silver.  Ed- 
ward III  coined  gold  in  1344.  Macpherson,  indeed,  has  given  evi- 
dence of  a  gold  coinage  under  Henry  III,  of  the  year  1257,  but  he 
acknowledges  that  the  quantity  must  have  been  small,  as  the  exist- 
ence of  this  currency  is  generally  unknown." — [History  of  Agricult- 
ure and  Prices,  i,  173,] 


ENGLISH  EXPERIENCE.  225 

sorted  to ;  and  it  was  fixed  that  the  guinea  should  be 
taken  as  the  equivalent  of  21  shillings,  and  conversely.1 

"In  1816,  however,  a  new  system  was  adopted  in  this 
country,  it  being  then  enacted  (56  George  III,  c.  68,) 
that  gold  coins  should  be  legal  tender  in  all  payments 
of  more  than  40  shillings.  The  pound  of  silver  bull- 
ion that  had  previously  been  coined  into  62  shillings 
was  then  also  coined  into  66  shillings,  the  additional 
four  shillings  being  retained  by  government  as  a  seign- 
iorage or  duty  (amounting  to  6^i-  per  cent.)  upon  the 
coinage.  To  prevent  the  silver  coins  from  becoming  re- 
dundant, government  has  retained  the  power  to  issue 
them  in  its  own  hands." — [Commercial  Dictionary.] 

From  1717  down  to  1797,  it  is  claimed  that,  while  gov- 
ernment sought  to  keep  the  two  metals  in  concurrent 
circulation,  at  a  fixed  ratio,  only  one,  that  which  was 
overrated  in  the  coinage,  was  in  fact  the  money  of  the 
kingdom.  "  During  a  long  period  previous  to  1797,  gold 
was  so  cheap,  compared  with  silver,  that  it  suited  the 
Bank  of  England,  and  all  other  debtors,  to  purchase  gold 
in  the  market,  and  not  silver,  for  the  purpose  of  carry- 
ing it  to  the  Mint  to  be  coined,  as  they  could  in  that 
coined  metal  more  cheaply  discharge  their  debts." — 
[Eicardo,  Political  Economy.] 

The  experience  of  the  United  States  .with  the  two 
metals  is  thus  given  by  Prof.  Sumner  : 

"  The  coinage  law  under  which  coins  were  first  struck 
in  1794  and  1795,  fixed  the  ratio  of  gold  to  silver  at  one 
to  fifteen  [the  silver  dollar  being  416  gr.,  371.25  gr.  pure ; 
and  the  gold  dollar  27  gr.,  24.75  gr.  pure,  the  alloy 
counting  for  nothing].  The  actual  rate  of  gold  to  silver 

1  This  is  held  to  have  overrated  gold,  compared  with  silver,  1||  per 
cent. — [Liverpool  on  Coins.] 

19* 


226  MONEY. 

was  at  that  time  different  in  different  countries ; l  but  in 
England  it  was  15.2  to  1.  Gold  was,  therefore,  under- 
rated in  the  coinage,  and  it  was  easier  for  a  debtor  to 
get  silver  to  the  amount  of  one  dollar,  than  gold  to  the 
amount  of  one  dollar.  Silver  accordingly  became  the 
real  measure  used  and^gold  bore  a  premium." 
"  Of  all  the  gold  that  came  in  and  was  coined,  the  Sec- 
retary of  the  Treasury  said,  1836,  that  not  over  $1,000,- 
000  remained  in  the  country  in  1834,  '  and  of  that  small 
amount  only  a  very  diminutive  portion  was  in  active 
circulation?  " 

"By  an  act  of  June  28,  1834,  the  gold  eagle  was 
made  to  weigh  258  gr.,  standard,  899.225,  that  is,  its  pure 
contents  were  232  gr.  or  23.20  gr.  to  the  dollar.  Under 
this  regulation  silver  was  to  gold  as  16  :  1.  This  ratio 
was  fixed  upon  in  a  blaze  of  exultation  about  the  recent 
discoveries  of  gold  in  North  Carolina,  which,  though 
known  to  exist  since  1801,  had  only  been  developed  since 
1828,  and  extravagant  hopes  were  entertained  of  finding 
{ a  new  Peru,'  in  the  mountains  of  Georgia  and  the 
Carolinas.  It  was  thought  by  some  that  it  would  '  en- 
courage the  miners'  to  overrate  gold  in  the  coinage.2 
In  1837,  silver  and  gold  were  both  made  exactly  nine- 
tenths  fine ;  but  the  pure  contents  of  the  silver  dollar 
remained  the  same  as  before,  the  gross  weight  being  re- 

1  See  p.  233. 

a  "  Another  consideration  may  be  adduced  in  favor  of  the  proposed 
reform  of  our  gold  coins.  It  seems  to  be  well  ascertained  that  the 
United  States  contain  one  of  the  most  extensive  deposits  of  gold  that 
has  yet  been  discovered.  ...  It  appears  but  just  to  afford  to 
those  employed  in  collecting  that  natural  product,  a  certain,  and  the 
highest^home  market  of  which  it  is  susceptible." — [Gallatin,  Consid- 
erations, etc.,  1831;  p.  64.] 


THE  AMERICAN  EXPERIMENT.  227 

duced  to  412.5  gr.  The  gold  dollar  now  contained  23.22 
gr.  fine. 

"  Thef  e  were  two  different  dollars  after  these  changes 
as  much  as  before.  The  silver  dollar  remained  as  be- 
fore, but  the  gold  dollar  was  now  worth  less  than  before. 
The  gold  dollar  had  formerly  been  worth,  in  the  silver 
coinage,  $1.038,  taking  the  true  ratio  to  be  15.6  : 1,  which 
was  asserted  by  the  best  authorities  to  be  the  true  one 
at  that  time.  The  new  gold  dollar  was  worth,  at  the 
same  ratio,  in  the  same  coin,  97.5  cts.  As  before  no  one 
would  pay  a  debt  with  gold  dollars,  so  now  no  one 
would  pay  with  silver  dollars.  Silver  went  out  of  circu- 
lation and  became  the  better  metal  to  export,  while  for 
the  same  reasons  gold  became  the  better  remittance  this 
way.  The  only  silver  which  could  circulate  here  was 
that  which  was  worn  or  clipped  until  it  was  not  worth 
more  than  silver  was  rated  at  in  our  coinage.  All  the 
worn-down  Spanish  pillar-pieces  came  here,  because 
they  had  a  value  here  higher  than  anywhere  else  in  the 
world.  "While  the  Mint  was  coining  fine  American 
pieces,  scarcely  one  was  to  be  seen  in  circulation.  The 
people  were  obliged  to  use  the  smooth  shillings,  which 
produced  a  quarrel  at  almost  every  exchange,  as  to 
whether  you  could  'see  the  pillars,'  until  some  one 
crossed  them  and  they  sank  into  unquestionable  dimes. 
They  were  generally  overrated  at  that." — [History  of 
American  Currency,  pp.  104-110.] 

In  1853  the  United  States,  which  had  to  that  time 
followed  the  lead  of  England,  imposed  a  seigniorage 
charge  of  one-half  of  one  per  cent.  By  the  same  act 
the  government  practically  abandoned  the  attempt  to 
keep  the  metals  in  circulation  as  equally  the  money  of 
the  land.  The  silver  dollar  had  disappeared,  owing  to 
being  underrated  in  the  coinage,  and  the  law  of  1853 


228  MONEY. 

did  not  touch  its  legal  rating,  but  the  fractional  coins 
were  purposely  made  of  less  than  their  nominal  value,1 
upon  the  principle  of  the  English  law  of  1816 ;  and  be- 
came legal  tender  only  for  sums  under  $5.  The  silver 
was  now  coined  by  the  government  out  of  purchased 
metal,  and  not  out  of- bullion  brought  by  private  par- 
ties to  the  Mint. 


I  have  stated  the  position  of  the  Mono-metallists  in 
the  language  of  Mr.  Nicholson,  and  have  illustrated  it 
by  the  experience  of  England  and  the  United  States,  as 
recited  by  Mr.  McCulloch  and  Prof.  Sumner. 

Mr.  Nicholson's  position  on  this  subject  is  the  posi- 
tion of  the  English  economists  generally,  scarcely  more 
in  the  present  than  in  the  past,  though  they  have  not 
always  been  agreed  as  to  the  metal  which  should  be 
selected  to  be  the  principal  medium  of  exchange. 

Locke  and  most  of  the  earlier  economists  advocated 
silver2;  of  late  the  opinion  of  the  English  economists 
has  been  quite  decidedly3  the  other  way.  It  was  Lord 

1  Half-dollar,       192  grains  standard,  T9¥  fine. 
Quarter-dollar,   96       "  "          "      " 

3  The  fact  that  Locke  and  the  elder  economists  advocated  the  use 
of  silver,  has  been  made  use  of  by  Bi-metallists  as  favoring  their 
cause.  Properly  considered,  however,  it  has  no  such  bearing.  Sil- 
ver has  fallen  so  much  in  purchasing  power  since  Locke's  day,  as  to 
take  from  it  much  of  the  fitness  it  then  had  for  use  as  the  principal 
coin  of  the  realm;  while  Locke's  arguments  against  the  possibility 
of  a  concurrent  circulation  of  two  metals  have  precisely  the  same 
validity  when  the  preference  is  given  to  gold,  in  these  days,  as  when 
silver  seemed  best  fitted  for  unlimited  legal  tender. 

3  Subsequently  to  1816,  and  prior  to  the  outbreak  of  the  present 
controversy,  in  1867,  Lord  Ashburton  was  perhaps  the  most  eminent 
advocate  of  a  return  to  the  double  standard.  The  views  of  several 
English  economists  upon  this  question  will  be  referred  to  in  the 
course  of  our  further  discussion. 


SILVER  AND  GOLD.  229 

Liverpool,  son  of  the  author  of  the  Letter  on  the  Coins 
of  the  Eealm,  who  led  in  the  change  which  resulted  as 
has  been  said,  in  1816,  in  the  definitive  establishment 
of  gold  as  the  single  standard  for  deferred  payments, 
and  the  reduction  of  silver  money  to  the  position  of  a 
subsidiary  or  token  coinage. 

It  will  be  observed  that  the  argument  against  the 
concurrent  circulation  of  two  metals  upon  equal  terms 
turns  upon  the  assumption  that  the  relative  values  of 
gold  and  silver  may  be  expected  to  vary  from  time  to 
time. 

Our  first  duty  clearly  is  to  inquire  into  the  history  of 
the  variation  in  the  comparative  purchasing  power  of 
the  two  metals,  from  which  results,  of  course,  the  price 
of  each  as  expressed  in  terms  of  the  other. 

The  point  we  have  reached  requires  us  to  make  a  dis- 
tinction not  heretofore  found  necessary.  Economists 
have  been  wont  to  make  this  distinction  between  Yalue 
and  Price  :  Yalue  is  purchasing  power — power  in  ex- 
change ;  Price  is  the  power  to  purchase  money — it  is  the 
money-value  of  commodities.  Money  itself,  then,  while 
it  has  value  (the  value  of  a  given  amount  of  money  be- 
ing measured  by  the  quantity  of  commodities  it  will 
purchase),  has  not  price.1  This  is  true  so  long  as  we 
think  of  money  as  one.  But  when  we  come  to  contem- 
plate it  as  composed  of  two  variable  elements,  it  is  evi- 
dent that  the  price  of  either  may  be  expressed  in  terms 
if  the  other.  Hence,  when  we  speak  of  the  price  of 
gold,  we  mean  its  silver- value ;  when  we  speak  of  the 

"On  appelle  prix  d'une  chose  la  quantite  de  numeraire  qu'elle 
vaut,  c'est  a  dire,  sa  valeur  exprimee  en  numeraire.  Chaque  chose 
n'a  qu'un  prix,  quoi  qu'elle  ait  beaucoup  de  valeurs  differentes,  et 
toute  chose  a  un  prix,  excepte  le  numeraire  lui  meme." — [Cherbuliez, 
Science  Economique,  i,  238. J 

20 


230  MONET. 

price  of  silver,  we  mean- its  gold-value.  When  we  speak 
of  the  value  of  either  gold  or  silver,  we  mean  the  power 
it  has  to  purchase  other  commodities,  including  the  one 
element  of  money  besides  itself. 

I  have  already  referred  to  a  statement  contained  in  a 
fragment  of  Agatharchidas,  that  silver  was  in  very  early 
times  more  valuable  in  Arabia  than  gold,  in  equal 
quantities  of  the  two  metals.1  In  our  own  day,  three 
hundred  years  after  the  stream  of  silver  began  to  pour 
from  the  opened  sides  of  Potosi,  the  proportionate 
value  of  silver  to  gold2  in  Japan  was  as  one  to  four. 
Throughout  European  history,  however,  we  have  no 
record  of  any  approach  of  silver  towards  equal  value, 
in  equal  quantities,  with  gold. 

"In  the  reign  of  Darius,  son  of  Hystaspes,"  says  Mr. 
Duncan,3  "gold  was  thirteen  times  as  valuable  as  silver; 
in  the  time  of  Plato,  twelve;  and  in  that  of  the  comic 
poet  Menander,  it  was  only  ten.  In  the  epoch  of  Julius 
Caesar  the  ratio  of  gold  to  silver  fell  to  nine  for  one." 

In  1262  Prof.  Kogers  finds  an  account  of  two  pur- 

1  "  The  learned  researches  of  Boeckh,  Letroune,  Humboldt,  Jacob 
and  Bureau  de  la  Malle.     .     .     .     They  agree  in  the  admission  that 
originally  the  value  of  silver,  in  some  countries,  has  equaled,  if  not 
exceeded,  that  of  gold." — [Leon  Faucher  on  the  Production  of  the 
Precious  Metals,  Hankey's  translation.] 

2  As  represented  respectively  in  the  two  coins,  the  Itzi  Boo  and 
the  Cobang.     "  It  followed  naturally,"  says  Mr.  Seyd,    "  that  the 
American  and  European  traders,  giving  dollars  for  Itzi  Boos,  speedily 
exchanged  the  latter  for  gold  Cobangs,  drawing  gold  away  from 
Japan,   at  an  enormous   profit   to   themselves.      The   Japanese,    of 
course,  soon  became  aware  of  this,  and  a  revolution  in  their  monetary 
valuation  took  place.     The  gold  Cobang  was,  after  a  period  during 
which  its  circulation  was  forbidden  on  pain  of  death,  reduced  to  one- 
fourth  of  its  previous  size." — [Bullion  and  Foreign  Exchanges,  p.  373.] 

3  On  Currency,  p.  135. 


INCREASE  OF  SILVER.  231 

chases  of  gold  in  England  which  average  9f  :1.  In  1292, 
only  thirty  years  later,  the  rate  is  12^ :  1. — [Hist.  Agr.  and 
Prices,  i,  594-5.]  Again :  "  The  rate  at  which  Edward  III 
issued  his  florins  in  1345,  taking  the  six  shillings,  wThich 
they  were  declared  to  be  worth  by  proclamation,  at  1485 
grains  of  pure  silver,  is  exactly  13.75  :1.  If  this  ratio 
really  represented  the  existing  proportions  between  the 
two  metals,  it  would  point  to  a  rise  of  about  ten  per  cent, 
in  the  value  of  gold,  in  the  course  of  fifty  years." — 
[Ibid.]  This  remarkable  rise  we  shall  have  occasion  to 
refer  to  hereafter,1  as  of  not  a  little  significance.  Stand- 
ing alone,  the  fact  of  so  great  a  rise  in  so  short  a  time 
would  seem  to  favor  strongly  the  cause  of  the  single 
standard,  as  showing  how  unreasonable  is  the  expecta- 
tion of  anything  like  a  permanent  relation  between  gold 
and  silver ;  but  with  the  explanation  which  Prof.  Rog- 
ers finds  for  this  rise  of  gold,  between  1262  and  1345,  the 
case  furnishes  a  very  effective  illustration  to  the  advo- 
cates of  the  "double  standard,"  or  the  Bi-metallists. 

While  the  discovery  of  America  took  place  in  1492, 
the  great  increase  of  the  volume  of  the  precious  metals 
was,  as  we  have  seen,  deferred  till  the  conquest  of  Mex- 
ico in  1521,  and  even  until  the  opening  of  the  mines  of 
Potosi  in  1545.  The  bulk  of  the  production  of  the 
Spanish  American  mines  being  in  silver,2  the  fall  in 

1  P.  25l! 

2  Humboldt  stated  the  quantity  of  silver  taken  from  the  American 
mines  down  to  about  the  beginning  of  the  present  century,  as  46 : 1 
of  gold.     This  would  make  the  value  of  the  silver  produced  as  be- 
tween 3  and  4  to  1.     Why  did  not  this  disproportion  of  product 
cause  a  greater  variation  in  the  value  of  gold,  in  terms  of  silver,  than 
from  10  or  12  to  15  or  16  ?     Mr.  Jacob  offers  in  explanation  what 
was  doubtless  one  of  the  principal  causes  concerned :  "  The  value  of 
the  silver  produced  since  the  discovery  of  America  is  three  times 
that  of  gold ;    but  the  loss  by  wear  on  silver  is  four  times  that  of 
gold." 


232  MONEY. 

purchasing  power  was  unequally  distributed  between 
the  two  metals.  As  Adam  Smith  stated  it,  "both  met- 
als sank  in  their  real  value,  or  in  the  quantity  of  labor 
which  they  could  purchase ;  but  silver  sank  more  than 
gold." 

M.  Chevalier  estimates-  the  fall  in  the  value  of  silver, 
from  the  discovery  of  America,  as  6  : 1 ;  that  of  gold  4 : 1. 
Prof.  Cairnes  is  disposed  to  deem  both  these  estimates 
excessive. — [Essays  in  Pol.  Econ.,  p.  124] 

Prof.  Leone  Levi,  in  his  "  History  of  British  Com- 
merce," thus  traces  the  effect  of  the  silver  discoveries  of 
America  upon  the  price  of  gold  in  the  several  countries 
of  Europe : 

"During  the  reign  of  Ferdinand  and  Isabella,  viz., 
from  1474  to  1516,  the  relative  value  between  gold  and 
silver  in  Spain  was  as  1 :  lOirnf.  In  the  year  1537,  and 
during  the  reign  of  Charles  V,1  the  relative  value  was 
fixed  at  1 :  lOfli" ;  during  .the  reign  of  Philip  II  it  was 
established  as  1 : 12iL2~234  ;  during  the  reign  of  Philip  III, 
as  1 : 13-3- ;  during  the  reign  of  Charles  II,  as  1 :  IS-gVsV ; 
and  finally  on  July  17,  1779,  the  relative  value  of  the 
two  metals  was  fixed  at  1 : 16.  In  the  year  1641,  Louis 
XIII  of  France  issued  an  edict  which  regulated  the 
proportion  between  gold  and  silver  at  the  French  Mints, 
and  this  proportion  was  established  at  1 : 13y,  with  the 
view  to  conform  in  this  respect  to  the  regulations  of 
foreign  countries,  where  the  proportions  were  as  fol- 
lows :  in  Germany  as  1  :  12 ;  in  England,  as  1 : 13i ;  in 
the  Netherlands,  as  1 : 12i- ;  and  in  Spain,  as  13-j.  These 
regulations  lasted  about  a  century,  when  it  became  nec- 
essary again  to  alter  them,  and  accordingly  in  the  year 
1724  an  edict  was  issued  by  which  the  proportion  be- 

1  Charles  I  of  Spain. 


INCREASE  OF  GOLD.  233 

tween  gold  and  silver  at  the  French  Mint  was  fixed  as 
1 : 14y.  At  the  time  of  this  last  edict  the  mint  regula- 
tions of  England  established  the  proportions  between 
gold  and  silver  as  1  to  about  151,  and  they  remained  at 
the  same  footing  until  the  new  coinage.  In  1780  the 
relative  value  between  gold  and  silver  was,  at  Amster- 
dam, as  1 : 14.885 ;  in  France,  as  1 : 14.581 ;  in  Spain,  as 
1:15.636;  at  Yenice,  as  1:14.779;  at  Genoa,  as  1: 
14.915;  at  Leghorn,  as  1:14.510;  in  England,  as  1: 
15.189,  and  at  Hamburg,  as  1 : 14.171.  In  the  standard 
of  British  coinage  at  the  present  time  1  part  of  gold  is 
worth  14^  of  silver ;  in  the  French,  1  part  of  gold  is  equal 
to  15^  of  silver,  and  in  the  countries  where  the  silver 
standard  prevails  the  proportion  varies  from  1 : 15-j  to 
15f."— [P.  326.n] 

The  wide  deviation  between  the  standard  of  the  pres- 
ent British  coinage  and  that  of  France,  is,  as  we  have 
seen,  due  to  the  intention  of  the  British  Government 
to  reduce  silver  to  the  grade  of  subsidiary  or  token  coin- 
age. 

The  discovery  of  the  Calif ornian  and  Australian  gold 
mines,1  between  1848  and  1851,  led  to  expectations  of 

1  "  Speaking  very  broadly,  silver  was  produced,  as  compared  with 
gold,  in  the  proportion  of  3  to  1  during  the  earlier  part  of  the  cent- 
ury; the  proportion  fell  to  .68  to  1  in  1848;  to  .27  to  1  between 
1852  and  1856;  and  between  1857  and  1875  it  gradually  rose  to  .68 
to  1." — [Report  of  Mr.  Grdschen's  Committee  on  the  Depreciation  of 
Silver  (1876),  p.  v.] 

Prof.  Levi  gives  the  following  summary  of  the  product  of  the 

mines  in  1846  and  1852 : 

1846.  1852. 

GOLD.     SILVER.       GOLD.      SILVER. 

North  and  South  America,  £1,300,000  £5,350,000       £13,300,000    £7,250,000 

Russia,                                    3,500,000  1,250,000           3,500,000 

Europe,  1,250,000 

Asia,  Borneo  and  Africa,       1,200,000  1,200,000 

Australia,  12,000,000 

£6,000,000    £6,500,000       £30,000,000     £8,500,000 


234  MONET. 

still  further  changes  in  the  relation  of  the  two  metals. 
"At  that  time,"  says  Prof.  Cairnes,  "according  to  all 
estimates  on  the  subject,  the  stock  of  silver  in  existence 
was  at  least  one-half  greater  than  that  of  gold."  These 
proportions  were  in  twenty  years  to  be  reversed. 

"Frightened,  and  not. "without  reason,"  says  Prof. 
Levi,  "at  the  possible  consequences,  some  countries, 
heretofore  anxious  to  attract  and  retain  gold  in  circula- 
tion even  at  great  sacrifices,  showed  a  feverish  anxiety 
to  banish  it  altogether.  In  July,  1850,  Holland  de- 
monetized the  gold  ten  florin  piece  and  the  Guillaume. 
Portugal  prohibited  any  gold  from  having  a  current 
value  except  English  sovereigns.  Belgium  demonetized 
its  gold  circulation.  Russia  prohibited  the  export  of 
silver;  and  France  alarmed,  but  less  hasty,  issued  a 
commission  to  inquire  into  the  matter." — [Hist.  British 
Commerce,  p.  336.] 

It  was  in  anticipation  of  a  change  so  great  as  to 
amount  to  a  practical  confiscation  of  one-quarter,  one- 
third,  or  even  one-half,  of  all  debts  which  had  been 
contracted  under  the  former  proportions  of  gold  and 
silver  established  in  France  by  the  law  of  the  year  XI 
'(1803),  that  M.  Chevalier  wrote  his  treatise  on  the 
"Probable  Fall  in  the  Value  of  Gold,"  already  referred 
to.  The  conclusions  he  reached  were  of  the  most 
alarming  nature,  and  in  his  view,  the  situation  re- 
quired the  instant  action  of  the  French  government  to 
prevent  a  social  and  industrial  catastrophe. 

The  work  of  M.  Chevalier  appeared  in  1857,  when 
the  production  of  gold  had  been  proceeding  in  Cali- 
fornia nine  years;  in  Australia  six  years.  Yet  though 
the  rate  of  gold  production  had  reached  a  point  which 
would  allow  the  whole  yield  (of  gold)  during  the  356 
years  between  1492  and  1848  to  be  equaled  in  ten 


INCREASE  OF  GOLD.  235 

years,  the  actual  effect  updn  the  relation  of  the  two 
metals,  and  even  upon  the  purchasing  power  of  the 
whole  mass  of  money,  realized  at  the  date  of  his  essay, 
had  been  small. 

How  was  this  to  be  accounted  for?  M.  Chevalier 
deemed  the  explanation  to  be  this :  The  new  gold  had 
been  absorbed  by  France,  to  replace  the  silver  formerly 
in  use  which,  when  so  replaced  in  the  circulation  of 
France,  flowed  away  to  India  and  the  East  in  payment 
for  the  rapidly  increasing  purchases  of  oriental  produc- 
tions, teas,  coffees,  silk,  spices,  and  drugs,  to  which  a 
stimulus  had  been  given  both  by  the  opening  of  the 
ports  of  China  and  Japan,  and  by  the  fact  that  the  new 
money  came  first  into  the  hands  of  the  laboring  classes, 
allowing  them  an  unwonted  indulgence  in  luxuries  of 
this  character.  The  explanation  of  M.  Chevalier  was 
not  fanciful.  The  coinage  of  gold  in  France  between 
1850  and  1857  had  been  2,749,693,490  francs,  or  £109,- 
987,735.  In  a  word,  and  that  M.  Chevalier's,  France 
had  been  the  parachute  which  had  retarded  the  fall  in 
gold.  That  state  of  things,  however,  could  not  long 
continue.  The  silver  of  France  would  soon  be  replaced 
by  gold  ;  and  the  new  supplies  would  soon  result  in  a 
general  and  rapid  depreciation,  first,  of  the  two  metals 
in  mass,  and  secondly,  of  silver  as  compared  with  gold. 

In  England,  Prof.  Cairnes,  in  the  essays  heretofore  so 
frequently  cited,  and  especially  in  that  of  1860,  in  which 
he  reviewed  M.  Chevalier's  work,  took  the  same  view  of 
the  influence  of  France  in  retarding  the  fall ; 1  but  was 
inclined  to  think  that  the  substitution  of  gold  for  silver 
in  France  was  only  a  very  striking  example  of  a  process 

1  "  The  fall  in  the  value  of  gold  has  thus,  up  to  the  present  time, 
been  at  once  checked  and  concealed ;  checked  by  being  substituted 
for  silver,  and  concealed  by  being  compared  with  it." 


236  MONEY. 

which  had  been  in  unobserved  operation  over  a  much 
wider  area,  and  which  would  continue  after  the  French 
movement  should  cease.  In  India,  he  noted,  where 
there  was  an  immense  silver  currency,  the  process  had 
already  begun  and  signs  were  not  wanting  that  it  would 
soon  assume  more  important  dimensions.  "These 
considerations,"  he  remarked,  "  do  not  apply  to  India 
alone ;  they  are  applicable,  more  or  less  extensively,  to 
other  countries  where  silver  is  the  currency,  and  more 
particularly  to  China,  where  there  is  a  large  silver  cir- 
culation, and  where  the  habits  of  the  people  are,  in 
many  respects,  similar  to  those  of  the  people  of  Hin- 
dostan. 

"For  these  reasons  we  cannot  concur  in  the  assump- 
tion that,  when  the  movement  in  the  French  currency 
is  concluded,  the  future  action  of  the  new  gold  must  be 
concentrated  upon  the  gold  currencies  of  the  world. 
We  think  that  its  effect  will  still  continue  to  be  shared, 
though  probably  in  a  less  degree  than  heretofore,  by 
the  other  precious  metal,  and  that  consequently,  the 
fall  in  gold,  though  accelerated,  will  not  proceed  with 
that  rapidity  which  M.  Chevalier  seems  to  anticipate." 
• — [Essays  in  Political  Economy,  pp.  144-5.]  Writing 
in  1872,  Prof.  Cairnes  used  the  following  language: 
"The  writer  can  now  claim  the  verdict  of  events  in  fa- 
vor of  the  view  which  he  here  ventured  to  maintain 
against  that  taken  by  M.  Chevalier.  Indeed,  the  course 
of  depreciation  has  been  even  less  affected  by  the  com- 
pletion of  the  process  of  substituting  gold  for  silver  in 
the  currency  of  France,  than  he  anticipated.  That 
process  would  seem  to  have  been  completed  about  the 
year  1861.  .  .  .  But  he  is  not  aware  that  any  sensi- 
ble change  in  the  rapidity  of  the  depreciation  of  gold 
can  be  traced  to  that  period.  ...  In  point  of  fact, 


TEE  SIL  VER  PANIC.  237 

tlie  price  of  silver  has  undergone  little  change  over  the 
whole  of  this  period,  and  is  now  rather  lower  than  when 
M.  Chevalier  wrote.  This  may  be  partly  due  to  the 
increased  production  of  silver  in  re.cent  years,  which 
would  more  or  less  counteract  any  tendency  to  an  ad- 
vance in  its  price ;  but  I  have  no  doubt  that  the  princi- 
pal cause  is  that  assigned — the  extensive  substitution  of 
gold  for  silver,  not  only  in  various  currencies,  in  differ- 
ent countries,  but  in  all  those  uses  in  which  the  two 
metals  may  be  indifferently  employed." — [145-6n.]  The 
last  sentence  of  Prof.  Cairnes  intimates  another  turn  in 
the  course  of  gold  and  silver  production. 

Whereas  between  1852  and  1860  the  annual  yield  of 
gold  had  ranged  from  119  to  182.5  millions  of  dollars, 
the  yield  of  silver  being  estimated  at  an  average  for  the 
term  of  40.5  millions,  the  annual  yield  of  silver  from 
1864  to  1870  rose  to  about  50  millions,  while  the  range 
of  the  gold  product  was  between  113  and  121  millions ; 
and  for  the  period  1871  to  1875,  the  yield  of  silver  rose 
from  61  to  71.5  millions,  the  gold  product  running  down 
in  1872  to  101.5  millions,  in  1874  to  90.5,  and  in  1875 
to  81.5.1 

It  was  no  more  than  was  to  be  expected  from  human 
nature,  that  the  rapid  reversal  of  the  relative  amounts 
of  gold  and  silver  yielded  by  the  mines,  in  consequence 
of  the  discovery  of  the  marvelous  silver  deposits  of 
Nevada,  and  the  continually  increasing  application  of 
quicksilver  in  the  treatment  of  silver  ores,2  while  the 

1  See  a  paper  on  the  "  Causes  of  the  Depreciation  of  Silver,"  by 
Baron  Von  Reinach,  translated  and  published  in  the  "  Bankers'  Maga- 
zine "  (K  Y.),  October,  1876. 

2  Owing  to  its  affinity  for  other  bodies,  silver,  unlike  gold,  is  rarely 
found  in  its  native  state,  but  is  obtained  chiefly  from  ores.     The  cost 
of  producing  silver  is,  therefore,  at  all  times  greatly  dependent  on 

20* 


238  MONEY. 

gold  mines  of  California  and  Australia  were  falling  rap- 
idly off  in  their  production,  should  excite  a  panic  such 
as  followed  the  discoveries  of  1848  and  1851,  though, 
this  time,  it  was  a  prospect  of  a  decline  in  the  value  of 
silver  which  gave  the  alarm.  The  adoption  of  a  single, 
gold  standard  by  Germany  added  to  the  supply  of  silver 
pouring  into  the  countries  which  still  maintained  the 
lower  metals  in  coinage  at  a  ratio  supposed  to  approx- 
imate their  respective  market  values;  and  the  "Latin 
Union,"  constituted  under  the  monetary  convention  of 
1865,  and  consisting  of  France,  Belgium,  Switzerland 
and  Italy,1  were  obliged  in  1874  closely  to  limit  their 
coinage  of  silver. 

Meanwhile  the  United  States  had,  in  1873,  declared 
the  silver  dollar  to  be  no  longer  legal  tender  in  unlimited 
amount  as  before.  Inasmuch,  however,  as  few  silver 
dollars  had  been  in  circulation  after  1834  and  as  neither 
silver  nor  gold  had  been  in  use  as  money  after  the  sus- 
pension of  specie  payments  in  1862,  this  action  of  the 
United  States,  though  having  doubtless  its  moral  effect, 
could  not  directly  and  presently  influence  the  demand 
for  silver. 


The  present  is  the  general  situation :  Austria  and 
Russia  alone  in  Europe  represent  the  single  silver 
standard ;  and  even  Austria,  since  1870,  has  been  coin- 
ing gold  pieces  of  8  and  4  florins,  severally,  in  weight 
and  fineness  identical  with  the  gold  20  and  10  franc 

the  state  of  the  metallurgical  arts  and  upon  the  plenty  or  scarcity 
with  which  quicksilver  is  produced  for  the  processes  of  amalgamation. 
In  mining  gold,  on  the  other  hand,  the  problems  are  mainly  me- 
chanical. 

1  Greece  has  since  acceded  to  the  convention. 


ATTITUDE  OF  THE  NATIONS.  239 

pieces ;  while  by  a  decree  of  1873,  the  gold  pieces  of 
the  Latin  Union  are  made  current  throughout  the  em- 
pire. 

"  Nevertheless,"  says  Prof.  Jevons,  "  the  silver  stand- 
ard practically  prevails  over  a  large  part  of  the  world. 
The  vast  populations  of  India  and  China,  Cochin  China, 
the  East  Indian  islands,  portions  of  Africa  and  the 
West  Indies,  Central  America  and  Mexico,  have  a  cur- 
rency mainly  consisting  of  silver  coins,  either  rupees, 
as  in  India,  sycee  bar's,  as  in  China,  or  silver  dollars, 
as  in  many  other  places." — [Money  and  the  Mechanism 
of  Exchange,  p.  148.] 

The  countries  having  the  single  gold  standard  are 
Great  Britain  and  Ireland,  the  Australian  colonies  and 
New  Zealand,  with  many  of  the  minor  possessions  of 
the  British  Empire,1  the  German  Empire,  the  Scandi- 
navian-Kingdoms, Portugal,  Turkey,  Egypt,  the  United 
States,  Chili  and  Brazil.  "Even  Japan,"  says  Prof. 
Jevons,  "has  imitated  European  nations,  and  intro- 
duced a  gold  coinage  of  20,  10,  5,  2,  and  1  yen  pieces, 
the  yen  being  only  3  per  mille  less  in  value  than  the 
American  gold  dollar.  The  new  fractional  money  of 
Japan  is  to  consist  of  50,  20,  10  and  5  sen  pieces  in  sil- 
ver (the  sen  corresponding  to  a  cent),  and  forming  a 
token- money,  at  the  fineness  of  eight  parts  in  ten." 

The  double  standard  is  nominally  maintained  in  Eu- 
rope2 by  France,  Italy,  Belgium  and  Switzerland,  con- 

1  The  currency  of  Canada,  says  Prof.  Jevons,  can  hardly  be  classed 
at  all,  at  present. 

2  Of  Holland,  Sir  Edward  Harris  writes  under  date  of  April  12, 
1876 :  "  The  whole  question  of  the  currency,  especially  that  of  the 
standard  to  be  ultimately  adopted  in  this  country,  is  now  under  the 
consideration  of  the  government."— [See  Mr.  Groschen's  Report,  p. 
128.] 


240  MONEY. 

stituting  the  Latin  Union,  and  by  Spain,  Greece  and 
Koumania,  and  in  the  New  World,  by  Peru,  Ecuador 
and  Grenada.  Several  of  these,  however,  like  Austria 
and  Russia  of  the  single  silver  standard,  and  the  United 
States,  Brazil  and  Turkey  of  the  single  gold  standard 
countries,  have  at  present  an  irredeemable  paper  money 
in  circulation,  so  that  they  contribute  little  to  the  ac- 
tual demand  for  either  or  both  metals. 

Upon  a  review  of  the  situation  thus  disclosed,  Prof. 
Jevons,  whom  I  cite  especially  because  he  has  been 
conspicuously  fair  towards  the  Bi-metallists,  as  they, 
indeed,  recognize  him  to  be,1  concludes  that  the  tend- 
ency towards  the  adoption  of  gold  as  the  sole  principal 
medium  of  exchange,  is  unmistakable. 

"  The  gold  standard  has  thus  made  great  progress, 
and  it  will  probably  continue  to  progress.  When  the 
United  States  return  to  specie  payments,  they  will  cer- 
tainly adopt  gold  ;  and  Canada,  whose  currency  can 
hardly  be  classed  at  all  at  present,  must  do  the  same. 
The  Latin  nations,  having  once  abandoned  the  double 
standard,  in  practice,  are  not  likely  to  return  to  it ;  and 
Austria  must  follow.  An  extensive  monetary  change  is 
hardly  to  be  expected  in  Russia.  .  .  . 

"  Hence  we  arrive,  it  seems  to  me,  at  a  broad,  deep  dis- 
tinction. The  highly  civilized  and  advancing  nations 
of  Western  Europe  and  North  America,  including,  also, 
the  rising  states  of  Australasia,  and  some  of  the  better 
second-rate  states,  such  as  Egypt,  Brazil  and  Japan, 
will  all  have  the  gold  standard.  The  silver  standard, 
on  the  other  hand,  will  probably  long  be  maintained 

1  M.  Wolowski  writes :  "  On  peut  comparer  la  reserve  et  le  ton 
dont  il  use  quand  il  parle  d'une  question  herisee  de  graves  difficultes 
avec  le  dogmatisme  tranchant  qui  s'etale  trop  souvent  chez  nous." — 
[L'Or  et  L' Argent,  p.  64.] 


THE  FUTURE  OF  SILVER.  241 

throughout  the  Russian  Empire,  and  most  parts  of  the 
vast  continent  of  Asia ;  also  in  some  parts  of  Africa  and 
possibly  in  Mexico. 

"  Excluding,  however,  these  minor  and  doubtful  cases, 
Asia  and  Russia  seem  likely  to  uphold  silver  against 
the  rest  of  the  world  adopting  gold.  In  such  a  result 
there  seems  to  be  nothing  to  regret." 

Prof.  Jevons  arrives  thus  at  the  conclusion  that  the 
double  standard  will  be  universally  abandoned,  and  that 
the  nations  will  divide  as  gold  standard  or  silver  stand- 
ard nations,1  the  former  comprising,  perhaps  we  might 
say,  those  countries  where  a  day's  labor  will  purchase 
from  ten  grains  upward  of  fine  gold. 

But  on  the  other  hand,  we  see  going  on  all  around  us 
an  active  agitation  for  the  remonetization  of  silver  in 
the  United  States;  while  abroad,  some  of  the  ablest 
economists  of  France  and  Germany  are  writing  actively 
in  favor  of  the  double  standard,  maintaining  their  cause 
with  vigor  and  courage.  The  question  is,  therefore,  not 
yet  settled  by  general  consent ;  and  the  policy  of  a 
double  standard  evidently  has  more  vitality  than  two 
years  ago  was  accorded  it,2  after  the  reverses  it  had  suf- 
fered in  Germany  and  the  United  States.  The  victory 
of  the  Mono-metallists  had  been  largely  through  sur- 

1  "  On  ne  voit  done  pas  de  raison  pour  que,  systematiquement,  tous 
les  peuples  civilises  se  mettent  a  repudier  1'un  des  deux  metaux  pre- 
cieux,  et  a  reserver  absolument  1' attribution  monetaire  pour  1'autre. 
Les  diverses  nations,  ou  pour  mieux  dire,  les  differents  groupes  d'etats, 
pourront  etre  conduits,  par  des  raisons  qui  leur  seront  propres,  les 
uns  a  preferer  1'or,  les  autres  a  preferer  Pargent." — [M.  Chevalier, 
La  Monnaie,  p.  171.] 

2  "  La   question   du   double   etalon  est  revenue.     ...     A  ma 
grande  surprise,  je  1'ai  vu  renaitre,  plus  vivace  que  jamais." — [Th. 
Mannequin,  La  Monnaie  et  Le  Double 

21 


242  MONEY. 

prise1  and  the  uncertainty  of  their  conquest  brings  to 
mind  the  wise  words  of  Bacon :  "  Things  will  have  their 
first  or  second  agitation;  if  they  be  not  tossed  upon 
the  arguments  of  counsel,  they  will  be  tossed  upon  the 
waves  of  fortune ;  and  be  full  of  inconstancy,  doing  and 
undoing,  like  the  reeling-of  a  drunken  man." 

1  Especially  in  the  United  States.  There  is  no  evidence  in  support 
of  the  charge  made  by  some  Bi-metallists,  that  the  legislation  of 
1873,  demonetizing  silver,  was  obtained  by  a  parliamentary  trick, 
or  was  inspired  by  sinister  motives ;  but  it  certainly  was  not  pre- 
ceded by  that  thorough  discussion,  or  accomplished  with  that  general 
consent  of  the  popular  intelligence  and  will,  which  are  desirable 
when  changes  in  fundamental  policy  are  to  be  made  in  a  free  country. 


CHAPTEE  XIII. 

"THE  BATTLE  OF  THE  STANDAEDS." 

THE  question  of  a  Single  or 'Double  Standard  is  real- 
ly, like  the  question  of  Protection  or  of  a  National  Bank, 
largely  a  political  question.  It  is  discussed  as  such, 
and  I  believe  is  likely  to  be  decided  as  such,  and  that, 
too,  in  the  way  intimated  by  Prof.  Jevons.  I  can  en- 
tertain no  doubt  that  the  action  of  Germany  in  rejecting 
silver  was  largely  influenced  by  political  considerations 
on  the  part  of  her  statesmen,  and  was  rendered  more 
acceptable  to  her  people  by  the  animosity  felt  towards 
France  at  the  close  of  a  desperate  war.  On  the  other 
hand,  the  very  phrase,  Latin  Union,  testifies  to  the 
strength  of  ethnical  affinities1  operating  upon  govern- 
ments and  people,  in  inducing  concerted  action  in  mat- 
ters of  monetary  standards  and  coinage. 

I  cannot  but  think  that  the  failure  to  distinguish  be- 
tween the  political  and  the  purely  economical  consider- 
ations which  are  concerned  with  this  question,  has  been 
the  cause  of  not  a  little  of  the  confusion  which  has 
arisen  in  the  discussion,  as  well  as  of  the  acerbity,  one 
might  almost  say  animosity,  with  which  that  discussion 
has  been  carried  on.  The  examination  of  any  question 

1  Herr  Bamberger  asserts  that  nothing  prevents  the  other  states  of 
the  Union  from  breaking  away  but  a  feeling  of  political  dependence 
on  France. 


244  MONEY. 

that  has  both  political  and  economical  bearings,  is  liable 
to  degenerate  in  this  way. 

Confining  ourselves  wholly  to  the  economical  aspects 
of  the  question,  and  discharging  ourselves,  as  far  as  we 
may,  of  all  prepossessions  on  the  subject,  let  us  inquire 
what  of  economical  truth:  there  is  in  the  position  of  the 
Bi-metallists.  As  the  first  step,  we  need  to  ask  what 
determines  the  comparative  purchasing  power,  and, 
through  that,  the  terms  of  mutual  exchange,  of  gold  and 
silver :  the  price  of  silver  in  gold ;  the  price  of  gold  in 
silver.1 

A  notion  sometimes  coming  to  the  surface  in  discus- 
sion is,  that  the  ratio  of  values  follows  the  ratio  of  quan- 
tities ;  that  gold  is,  say,  15^  times  as  valuable  as  silver, 
because  there  are  15y  times  as  much  silver  as  gold. 
This  notion  is  cleverly  hit-off  by  Adam  Smith : 

"The  proportion  between  the  quantities  of  gold  and 
silver  annually  imported  into  Europe,  according  to  Mr. 

Meggens's  account,  is  as  1 : 22  nearly The 

great  quantity  of  silver  sent  annually  to  the  East  Indies 
reduces,  he  supposes,  the  quantities  of  those  metals 
which  remain  in  Europe  to  the  proportion  of  1 : 14  or  15, 
the  proportion  of  their  values.  The  proportion  between 
their  values  must  necessarily,  he  seems  to  think,  be  the 
same  as  that  between  their  quantities,  and  would  there- 
fore be  as  1 : 22,  were  it  not  for  this  greater  exportation 
of  silver. 

"  But  the  ordinary  proportion  between  the  respective 
values  of  two  commodities  is  not  necessarily  the  same 
as  that  between  the  quantities  of  them  which  are  com- 
monly in  the  market.2  The  'price  of  an  ox,  reckoned  at 

1  See  pp.  229-30. 

2  Dr.  Smith  goes  on  to  remark  that  "the  whole  quantity  of  a  cheap 
commodity  brought  to  market  is  commonly  not  only  greater,  but 


THE  VALUE  OF  MONEY.  245 

10  guineas,  is  about  three-score  times  the  price  of  a 
lamb,  reckoned  at  3s.  6d.  It  would  be  absurd,  however, 
to  infer  from  thence,  that  there  are  commonly  in  the 
markets  three-score  lambs  for  one  ox." — [Wealth  of  Na- 
tions, i,  222.] 

But,  again  it  is  said,  it  is  the  cost  of  production  which 
determines  value.  This  is  the  usual  form  of  statement. 
If  gold  is  to  silver  in  value  as  15^  :  1,  we  are  carried  at 
once  to  the  conclusion  that  it  costs  15^  times  as  much 
to  bring  an  ounce  of  gold  to  market,  as  to  bring  an 
ounce  of  silver. 

But  it  is  always  and  everywhere  the  relation  of  sup- 
ply to  demand  that  determines  value.  Cost  of  produc- 
tion only  affects  value  by- affecting  the  actual  or  poten- 
tial supply.  A  lower  cost  of  production  allows,  under 
given  conditions,  a  larger  supply  to  be  marketed.  A 
higher  cost  of  production  diminishes  supply.  This  is 
the  only  way  in  which  a  change  in  the  cost  of  production 
can  influence  existing  values.  In  the  act  of  exchange,  it 
does  not  matter  what  a  thing  cost ;  the  one  question  is, 
what  would  it  cost  to  replace  it.  "Labor  once  spent," 
says  Prof.  Jevons,  "has  no  influence  on  the  future  value 
of  any  article."— [Theory  of  Pol.  Econ.,  p.  159.]  This 
principle,  which  is  of  great  consequence  in  respect  to 
any  commodity  which  is  brought  to  market,  is  of  excep- 
tional importance  in  respect  to  the  metals,  especially 
silver  and  gold,  and  in  a  pre-eminent  degree  the  latter, 
because  of  the  fact,  so  often  made  use  of,  that  the 
amount  of  any  year's  production  must  always  bear  a 
very  small  proportion  to  the  total  stock. 

of  greater  value,  than  the  whole  quantity  of  a  dear  one.  .  .  . 
There  are  so  many  more  purchasers  for  the  cheap  than  for  the  dear 
commodity,  that  not  only  a  greater  quantity  of  it,  but  a  greater 
value,  can  commonly  be  disposed  of." 


246  MONEY. 

But  while  the  above  holds  true  respecting  the  value 
of  all  commodities,  the  value  of  money  is,  in  one  respect, 
subject  to  a  law  of  its  own. 

"  The  value  of  other  things  conforms,"  says  Mr.  Mill, 
"to  the  changes  in  the  cost  of  production,  without  re- 
quiring as  a  condition  that  there  should  be  any  actual- 
alteration  of  the  supply :  the  potential  alteration  is  suffi- 
cient ;  and,  if  there  even  be  an  actual  alteration,  it  is  but 
a  temporary  one,  except  in  so  far  as  the  altered  value  may 
make  a  difference  in  the  demand,  and  so  require  an  in- 
crease or  diminution  of  supply,  as  a  consequence,  not  a 
cause,  of  the  alteration  in  value.  Now  this  is  also  true 
of  gold  and  silver,  considered  as  articles  of  expenditure 
for  ornament  and  luxury ;  but  it  is  not  true  of  money. 

"  If  the  cost  of  production  of  gold  were  reduced  one- 
fourth  by  the  discovery  of  more  fertile  mines,  it  might 
happen  that  there  would  not  be  more  of  it  bought  for 
plate,  gilding,  or  jewelry  than  before ;  and  if  so,  though 
the  value  would  fall,  the  quantity  extracted  from  the 
mines  for  these  purposes  would  be  no  greater  than  pre- 
viously. Not  so  with  the  portion  used  as  money :  that 
portion  could  not  fall  in  value  one-fourth,  unless  actu- 
ally increased  one-fourth ;  for,  at  prices  one-fourth  high- 
er, one-fourth  more  money  would  be  required  to  make 
the  accustomed  purchases ;  and,  if  this  were  not  forth- 
coming, some  of  the  commodities  would  be  without  pur- 
chasers, and  prices  could  not  be  kept  up. 

"Alterations,  therefore,  in  the  cost  of  production  of 
the  precious  metals  do  not  act  upon  the  value  of  money 
except  just  in  proportion  as  they  increase  or  diminish  its 
quantity,  which  cannot  be  said  of  any  other  commodity." 
— [J.  S.  Mill,  Principles  of  Political  Economy,  III,  ix,  3.] 

One  or  two  illustrations  will  show  the  importance  ol 
these  principles  in  their  application  to  the  value  of 


THE  VALUE  OF  MONEY.  247 

money.  Suppose  the  cost  of  producing  silver  to  rise 
suddenly,  through  the  exhaustion  of  the  better  mines, 
from  five  shillings  per  oz.  to  twenty  shillings.  Silver 
would  not,  therefore,  be  worth  twenty  shillings.  On 
the  contrary,  we  should  have  the  phenomenon  noted  by 
Mr.  Jacob1  respecting  the  period  480  to  680  A.D.:  pro- 
duction would  cease  entirely,  and,  for  the  moment,  sil- 
ver would  remain  at  five  shillings.  From  year  to  year, 
however,  the  stock  would  be  diminished  by  the  wear  of 
coin,  by  accidental  loss,  and  by  the  consumption  of  the 
metal  in  the  arts,  so  that,  were  the  demand  to  remain 
the  same,  the  value  would  slowly  and  steadily  rise,  as 
was  the  case  from  the  fifth  to  the  thirteenth  century. 
The  demand,  however,  probably  would  not  remain  the 
same.  In  spite  of  an  increasing  economy  in  the  use 
of  money,  the  growth  of  population  and  the  extension 
of  trade  would  doubtless  afford  continually  larger  occa- 
sions for  the  use  of  money ;  and  by  this  increase  of  de- 
mand the  value  of  silver  would  still  further  rise.  Such 
a  process  might  continue  through  centuries,  the  value 
of  silver  having  no  respect  at  any  time  to  either  the 
original  cost  of  the  production  of  the  existing  volume 
(say,  five  shillings  per  oz.),  or  to  the  cost  of  reproduc- 
tion (say,  twenty  shillings),  but  steadily  rising  from  five 
shillings  towards  twenty  shillings,  as  the  varying  rela- 
tion of  supply  to  demand  determined.  We  have  seen  that 
such  a  practical  cessation  of  silver  mining,  leading  to  the 
progressive  enhancement  of  the  value  of  silver,  through 
demand  operating  on  a  stock  of  metal  cut  off  from  all 
new  supply  but  subject  to  unremitting  wear  and  loss, 
has  actually  occurred  in  the  history  of  Europe. 

On  the  other  hand,  if  we  suppose  the  cost  of  produc- 

1  See  p.  129. 


248  MONEY. 

tion  to  fall  suddenly  from  five  shillings  per  oz.,  to  two, 
the  value  of  silver  would  not  in  consequence  fall  to  that 
point.  Indeed,  for  the  moment,  it  might  stand  at  the 
old  figures,  as  Mr.  Mill  has  shown.  A  lower  cost  of 
production  would  of  course  encourage  mining,  would 
draw  large  bodies  of  labor  and  capital  into  this  branch 
of  industry,  and  the  yield  might  in  a  few  years  be  doub- 
led, trebled  or  quadrupled;  yet,  owing  to  the  large 
stock  in  existence,  the  stimulus  afforded  by  the  most 
extravagant  profits  could  not  for  many  years  reduce  the 
value  of  silver  to  a  point  corresponding  to  the  cost  of 
production. 

The  bearing  of  this  principle  on  the  question  of  the 
relative  values  of  gold  and  silver  is  clearly  seen.  The 
question  is  often  discussed,  as  if  the  value  of  either 
metal  depended  directly  on  the  cost  of  production  at  the 
time ;  and,  as  it  is  evident  that  the  cost  of  production 
must  vary  from  a  thousand  circumstances,  it  is  con- 
cluded that  the  value  of  each  must  fluctuate  correspond- 
ingly, as  to  frequency  and  extent  of  movement.  We 
have  seen,  however,  that  the  influence  of  changes  in  the 
cost  of  production  upon  the  value. of  money  is  indirect 
and  distant,  giving  thus,  not  only  a  great  steadiness  to 
the  value  of  either  metal  used  as  money,  when  com- 
pared with  the  body  of  commodities  in  the  market,  but 
also,  by  consequence,  a  great  degree  of  permanence  to 
the  ratio  between  the  metals  themselves. 


But,  again,  a  certain  additional  degree  of  steadiness 
is  given  to  the  relation  of  the  two  metals  by  the  fact 
that  they  are,  in  a  considerable  degree,  interchangeable 
in  their  uses,  both  as  money  and  in  the  arts. 

"If,"  says  Prof.  Cairnes,  "anything  unfits  one  com- 


THE  VALUE  OF  MONEY.  249 

modity  for  measuring  the  value  of  another,  it  is  the  cir- 
cumstance that  they  may  be  both  applied  to  common 
purposes.  No  one  would  think  of  measuring  the  fluc- 
tuations in  wheat  by  comparing  it  with  oats,  because, 
both  grains  being  employed  for  the  same  or  similar 
purposes,  any  change  in  the  value  of  one  is  sure  to  ex- 
tend to  the  other.  When,  e.  g.,  the  wheat  crop  is  in  ex- 
cess, while  the  oat  crop  is  an  average  one,  it  always 
happens  that  a  portion  of  the  consumption  which,  in 
ordinary  years,  falls  upon  oats,  is  thrown  upon  wheat ; 1 
the  effect  of  which  is  at  once  to  check  the  fall  in  the 
price  of  the  more  abundant  grain,  while,  by  diminishing 
the  need  for  the  other,  it  causes  it  to  participate  in  the 
decline.  The  influence  of  the  increased  abundance  of 
one  commodity  is  thus  distributed  over  both ;  the  fall 
in  price  being  less  intense  in  degree,  in  proportion 
as  it  is  wider  in  extent.  Now  this  is  precisely  what  is 
happening  [1860]  in  the  relations  of  gold  and  silver. 
The  crop  of  gold  has  been  unusually  large ;  the  increase 
in  the  supply  has  caused  a  fall  in  its  value ;  the  fall  in 
its  value  has  led  to  its  being  substituted  for  silver ;  a 
mass  of  silver  has  thus  been  disengaged  from  purposes 
which  it  was  formerly  employed  to  serve ;  and  the  result 
has  been  that  both  metals  have  fallen  in  value  together, 
the  depth  of  the  fall  being  diminished  as  the  surface 
over  which  it  has  taken  place  has  been  enlarged." — [Es- 
says in  Pol.  Econ.,  p.  141.] 

This  interchangeability  in  the  use  of  the  two  metals 

1  Mr.  Tooke  takes  note  of  the  great  consumption  of  barley  in  1838, 
involving  a  marked  increase  of  price,  in  consequence  of  the  short 
crop  of  wheat.  There  is,  he  says,  no  doubt  that  in  the  course  of 
that  year  a  great  deal  of  barley,  which  would  otherwise  have  been 
used  for  malting  and  distilling,  was  manufactured  into  flour,  entering 
largely  into  consumption  as  bread.— [Hist.  Prices,  hi,  19.] 


250  MONEY. 

tells  so  strongly  against  the  position  of  the  Mono-met- 
allists  that  we  find  them  naturally,  and  doubtless  in 
perfect  candor,  taking  a  rather  disparaging  view  of 
the  extent  to  which  interchangeability,  in  fact,  exists. 
Thus  M.  Chevalier,  who  admits1  the  principle  involved, 
holds  the  relation  of  theJrwo  metals  in  consumption  to 
be  much  less  intimate  than  Prof.  Cairnes  regards  them. 
Prof.  Cairnes  compares  their  relation  to  that  between 
two  different  kinds  of  breadstuff,  M.  Chevalier  making 
it  no  more  intimate  than  that  between  bread  and  meat. 

"  The  value  of  gold  and  that  of  silver  depends,  in  fact, 
to  a  large  extent  upon  circumstances  peculiar  to  each  of 
them,  they  being  identical  in  this  respect  with  iron  or 
copper,  bread  or  meat.  It  would  doubtless  be  an  exag- 
geration to  say  that  they  are  absolutely  independent  of 
each  other,  for  whenever  two  substances  have  a  com- 
mon use,  the  value  of  one  exercises  a  certain  influence 
upon  that  of  the  other;  but  between  gold  and  silver 
this  relation  is  not  closer  than  that  between  corn  and 
wine  or  between  bread  and  meat.  Now,  who  has  ever 
maintained  that  so  close  a  connection  exists  between 
these  two  products  that,  the  price  of  one  being  given, 
that  of  the  other  can  thereby  be  determined?" — [On 
Gold,  Cobden's  translation,  p.  38.] 

But  while  there  may  be  dispute  as  to  the  degree  in 
which  one  of  the  metals,  gold  and  silver,  is,  in  fact,  re- 
placed by  the  other,  in  consequence  of  changes  in  cost 
of  production,  there  can  be  none  as  to  the  effect  of  such 
replacement,  so  far  as  it  proceeds,  upon  the  relative 
values  of  the  two.  In  his  "  Theory  of  Political  Econ- 
omy," Prof.  Jevons,  under  the  title  "The  Equivalence  «f 

1  "  Sans  derate  1'or  et  1'argent  sont,  dans  une  certaine  mesure, 
solidaires  et  reagissent  a  ce  titre  1'un  sur  1'autre,  a  cause  de  1'emploi 
simultane  qu'on  en  fait  pour  le  monnayage." — [La  Monnaie,  p.  458.] 


THE  VALUE  OF  MONEY.  251 

Commodities,"  says:  "We  must,  in  fact,  treat  beef  and 
mutton  as  one  commodity  of  two  different  strengths, 
just  as  gold  at  eighteen  and  twenty  carats  is  hardly  con- 
sidered as  two,  but  as  one  commodity,  of  which  twenty 
parts  of  one  are  equivalent  to  eighteen  of  the  other. 

"It  is  upon  this  principle,"  he  continues,  "that  we 
must  explain,  in  harmony  with  Prof.  Cairnes's  view,  the 
extraordinary  permanence  of  the  ratio  of  exchange  of 
gold  and  silver.  .  .  .  That  this  fixedness  of  ratio 
does  not  depend  upon  the  amount  or  cost  of  production, 
is  proved  by  the  very  slight  effect  of  the  Australian  and 
Californian  gold  discoveries.  .  .  . 

"  The  French  currency  law  of  the  year  XI  [1803]  es- 
tablishes an  artificial  equation  —  utility  of  gold  =  151 
X  utility  of  silver.  It  is  probably  not  without  some 
reason  that  M.  Wolowski  and  other  recent  French  econ- 
omists attributed  to  this  law  of  replacement  an  impor- 
tant effect  in  preventing  disturbance  in  the  relations  of 
gold  and  silver."— [P.  129.] 

We  have  now  reached  the  point  where  we  may  ap- 
propriately consider  Prof.  Bogers's  explanation  of  the 
great  rise  in  the  value  of  gold  between  1262  and  1292 
A.  D.,1  a  rise  which,  standing  by  itself,  appears  a  strik- 
ing instance  of  the  variability  of  the  ratio  between  gold 
and  silver ;  but  for  which  the  historian  of  English  agri- 
culture and  prices  alleges  a  cause  which  makes  the  in- 
cident tell  strongly  in  favor  of  the  position  of  the  Bi- 
metallists. 

It  will  be  recollected  that  Prof.  Rogers  found  that  in 
1262  gold  exchanged  for  silver  at  9 J  for  1 ;  and  in  1292, 
at  12.5  for  1,  in  value,  for  equal  weights. 

"  Such  a  discrepancy  between  the  value  of  gold  in  the 

2  See  p.  230. 


252  MONEY. 

two  quotations,  after  an  interval  of  only  thirty  years,  is 
sufficiently  surprising,  and  cannot,  I  think,  be  explained 
except  by  an  increased  adoption  of  gold  on  the  Conti- 
nent as  a  means  of  currency ;  for  it  will  be  clear  that, 
just  as  a  very  great  fall  would  take  place  in  the  value  of 
existing  stocks  of  gold,  were  this  metal  absolutely  de- 
monetized, so,  e  converso,  a  considerable  rise  would  occur 
in  its  comparative  value,  if,  in  the  economical  history  of 
any  community,  or  rather  of  a  large  number  of  commu- 
nities, gold  were  increasingly  adopted  as  a  measure  of 
value  and  a  means  for  carrying  011  commerce. 

"I  cannot,"  continues  Prof.  Rogers,  " agree  with  the 
opinion1  expressed  by  some  economists,  that  the  mar- 
ket value  of  gold  will  always  be  relative  to  its  demand  in 
the  arts,  unless,  indeed,  the  term  be  extended  so  as  to 
include  the  art  of  the  moneyer.  The  price  of  gold 
must  be  relative  to  the  aggregate  of  all  demands  for  it, 
corrected  by  the  cost  of  producing  it.  ...  Now,  it 
appears  that,  at  or  about  the  conclusion  of  the  thir- 
teenth century,  gold  currencies  became  general  in  Italy. 
The  Venetians,  we  are  informed,  coined  gold  ducats  in 
the  year  1285,  and  it  is  said  that  the  weight  and  shape 
of  these  ducats  were  copied  in  Germany  and  Hungary. 
It  appears,  too,  that  the  reputation  of  the  gold  coinage 
of  Brescia  and  Florence  commenced  at  about  1270  and 
1290,  respectively,  and  that  it  extended  over  all  Italy, 
and  even  to  the  whole  civilized  world,  in  the  next  cent- 
ury. This  extension  of  a  gold  currency  was,  no  doubt, 
furthered  by  the  migration  of  the  Pope  to  Avignon,  for 
the  currency  of  the  Curia  is  entirely  gold.  These  causes, 
and  the  fact  that  France  issued  a  gold  currency  as  early, 
we  are  told,  as  the  reign  of  St.  Louis,  are  sufficient  to 

1  The  allusion  is  to  Prof.  Senior's  view,  cited  on  p.  43. 


THE  VALUE  OF  MONET.  253 

explain  the  rise  in  the  relative  value  of  gold  to 'silver  at 
the  conclusion  of  the  thirteenth  century." 

Of  the  further  rise  of  gold  (about  10  per  cent.)  be- 
tween 1292  and  1345,  Prof.  Rogers  remarks  that  it  is 
"  a  rise  which  might  occur  as  a  consequence  of  the  in- 
creased circulation  of  gold  as  a  means  of  currency. 
Now,  according  to  Muratori,  it  was  in  the  first  forty 
years  of  the  fourteenth  century  that  this  gold  currency 
was  so  generally  extended." 

The  power  thus  shown  to  reside  in  fashion  or  law  to 
affect  the  value  of  one  of  the  metals,  without  reference 
to  any  change  in  the  cost  of  production,  by  giving  to  it 
an  increased  use  in  coinage,  tells,  of  course,  in  favor  of 
the  claims  of  the  Bi-metallists ;  as  does  the  unprece- 
dentedly  rapid  decline  of  silver,  after  it  was  thrown  out 
of  its  office  as  unlimited  legal  tender  in  Germany  during 
the  present  decade. 


Yet,  in  spite  of  the  tendencies  which  have  been  noted 
towards  keeping  steady  the  demand  and  the  supply  of 
gold  and  silver,  we  have  seen  the  fact  of  fluctuations  in 
value  from  generation  to  generation,  and  even  from  year 
to  year,  sufficient  to  send  now  one,  and  now  another, 
of  the  two  metals  out  of  circulation,  in  countries  which, 
like  France  down  to  the  present  time,  and  the  United 
States  to  1873,  and  England  to  1816, 'attempt  to  keep 
both  in  circulation  at  a  fixed  ratio  of  exchange.  For 
purposes  of  economical  reasoning  we  may  assume  all 
men  to  be  actuated  by  the  desire  to  make  purchases  or 
payments,  whenever  a  chance  is  offered,  with  that  com- 
modity which  it  will  cost  the  least  effort  and  sacrifice  to 
replace.  What  has  the  Bi-metallist  to  say  to  this  ? 

The  answer  is  that  of  the  late  M.  Wolowski,  the  most 
22 


254  MONEY. 

able  and  ingenious  of  the  school  of  writers  who  advo- 
cate a  concurrent  .circulation.  Gold  and  silver  have 
not,  either  in  the  mass  or  singly,  preserved  their  value 
from  age  to  age,  or  from  year  to  year.  The  value  of  a 
pound  of  gold  relatively  to  that  of  a  pound  of  silver, 
has  varied  from  time  to  time ;  as  the  value  of  a  pound 
of  gold  and  a  pound  of  silver  jointly  to  purchase  com- 
modities has  varied.  Such  variations  in  purchasing 
power  are  in  the  very  nature  of  exchange.  Absolute 
steadiness  in  value  cannot  be  attained.  But  to  unite 
gold  and  silver  in  the  office  of  money  is  to  generate  a 
compensatory  action  which  shall  not  only  tend  to  re- 
duce the  variations  in  their  mutual  relation,  but  shall 
give  to  the  two,  as  a  mass,  a  steadiness  in  comparison 
with  the  general  body  of  commodities  which  neither l 
by  itself  could  have.  It  is  in  this  way  that  the  Bi-met- 
allist  accounts  for  the  remarkable  fact  that  in  several 
centuries  down  to  1873,  gold  and  silver  never  diverged 

1  It  has  been  somewhat  hotly  disputed  whether  gold  or  silver  has, 
from  the  circumstances  of  its  production,  the  greater  likelihood  of 
remaining  constant  in  value.  The  Mono-metallists  now  strenuously 
claim  this  advantage  for  gold  on  account  of  its  slow  consumption ; 
the  Bi-metallists  allege  the  production  of  silver  to  be  the  more  stable, 
making  much  of  the  fact  that  gold  is  found  largely  in  surface  placers 
and  accidental  deposits,  while  silver  is  found  in  veins,  and  procured 
by  systematic  mining  operations.  On  this  point  the  admission  of 
M.  Chevalier,  the  foremost  champion  of  the  single  standard  must  be 
regarded  as  important:  "La  plus  grande  fixite  qu'il  etait  assez  a  la 
mode,  pendant  le  premier  quart  du  dix-neuvieme  siecle,  de  repre- 
senter  comme  etant  1'attribut  special  de'  1'or,  est  eminemment  proble- 
matique  et  on  peut  la  considerer  comme  une  fiction.  On  n'apergoit 
aucune  bonne  raison  pour  affirmer  que  les  circonstances,  qui  de 
temps  en  temps  agissent  sur  la  valeur  des  metaux  pour  la  modifier, 
soient  de  nature  a  affecter  1'un  beaucoup  plus  que  1'autre." — [La  Mon- 
naie,  p.  171.] 


THE  VALUE  OF  MONEY.  255 

far  from  .the  ratio  of  15  :  1,  even  the  Australian  and 
Calif  or  nian  discoveries  raising  the  gold  price  of  silver 
less  than  five  per  cent.,  the  permanent  effect  not  exceed- 
ing one  and  a  half  per  cent. 

This  claim  of  a  compensatory,  or  equilibratory,  ac- 
tion under  the  double  standard,  Prof.  Jevons  fully  con- 
cedes.1 "If  silver,"  he  says,  "becomes  more  valuable 
than  in  the  ratio  of  1 : 15y  compared  with  gold,  there 
arises  at  once  a  tendency  to  import  gold  into  any  coun- 
try possessing  the  double  standard,  so  that  it  may  be 
coined  there  and  exchanged  for  a  legally  equivalent 
weight  of  silver  coin,  to  be  exported  again.  This  is  not 
a  matter  of  theory  only,  the  process  having  gone  on  in 
France  until  the  principal  currency,  which  was  mainly 
composed  of  silver  in  1849,  was,  in  1860,  almost  wholly 
of  gold.  France  absorbed  the  cheapened  metal  in  vast 
quantities,  and  emitted  the  dearer  metal,  which  must 
have  had  the  effect  of  preventing  gold  from  falling  and 
silver  from  rising  so  much  in  value  as  they  would  other- 
wise have  done.  It  is  obvious  that,  if  gold  rose  in  value 
compared  with  silver,  the  action  would  be  reversed; 
gold  would  be  absorbed  and  silver  liberated.  At  any 
moment  the  standard  of  value  is  doubtless  one  metal  or 
the  other,  and  not  both  ;  yet  the  fact  that  there  is  an  al- 
ternation tends  to  make  each  vary  much  less  than  it 
would  otherwise  do.  It  cannot  prevent  both  metals 
falling  or  rising  in  value  compared  with  other  commod- 
ities ;  but  it  can  throw  variations  of  supply  and  demand 
over  a  larger  area,  instead  of  leaving  each  metal  to  be 
affected  merely  by  its  own  accidents. 

"Imagine  two  reservoirs  of  water,  each  subject  to  in- 

1  M.  Mannequin,  in  his  tract  "  La  Monnaie  et  le  Double  Etalon " 
(pp.  11-3),  undertakes  to  demonstrate  the  futility  of  the  compensatory 
action  adduced  by  M.  Wolowski. 


256  MONEY. 

dependent  variations  of  supply  and  demand.  In  the 
absence  of  any  connecting  pipe,  the  level  of  the  water 
in  each  reservoir  will  be  subject  to  its  own  fluctuations 
only.  But  if  we  open  a  connection,  the  water  in  both 
will  assume  a  certain  mean  level,  and  the  effects  of  any 
excessive  supply  or  demand  will  be  distributed  over  the 
whole  area  of  both  reservoirs.  The  mass  of  the  metals, 
gold  and  silver,  circulating  in  Western  Europe  in  late 
years,  is  exactly  represented  by  the  water  in  these  res- 
ervoirs ;  and  the  connecting  pipe  is  the  law  of  the  7th 
Germinal,  An  XI,  which  enables  one  metal  to  take  the 
place  of  the  other  as  an  unlimited  legal  tender."  — 
[Money  and  the  Mech,  of  Exch.,  pp.  139-40.] 

"The  German  Economists,"  says  M.  Laveleye,1  "have 
generally  recognized  the  compensatory  action  of  bi-me- 
tallic  money,  even  those  who  are  the  partisans  of  the 
gold  standard.  We  may,  I  think,"  he  concludes,  "  con- 
sider it  as  demonstrated  that  money  of  two  metals  is 
less  subject  to  fluctuations  in  value,  within  short  inter- 
vals ;  and  consequently,  entails  fewer  changes  of  price, 
than  money  composed  of  one  metal  only,  for  precisely 
the  same  reason  that  a  compensated  pendulum  made  of 
steel  and  copper,  is  less  subject  to  expansion  than  if  it 
were  made  of  a  single  metal." 

And  here  we  note  that  whatever  may  be  decided  re- 
specting the  comparative  advantages  of  a  standard, 
wholly  and  permanently  of  money  of  one  metal,  and  an 
alternative  standard,  now  of  gold  and  now  of  silver,  ac- 
cording to  variations  in  value,  M.  Chevalier2  and  the 

1  Article  translated  by  Hon.  George  Walker,  and  published  in  the 
K  Y.  "Banker's  Magazine,"  March,  1877. 

9  "Mais  si  les  deux  metaux  sont  etalons,  il  y  aura  double  chance  a 
courir,  car  aux  variations  de  1'un,  il  faut  ajouter  les  variations  de 
1'autre." — [M.  Chevalier,  Proces-verbaux  de  la  Commission  Monetaire 
de  1807.] 


THE  VALUE  OF  MONET.  257 

English  economists  generally,  are  clearly  wrong  in  as- 
serting that  the  French  system  exposes  the  commercial 
community  to  the  extreme  fluctuations  of  both  metals. 

On  the  contrary,  it  is  manifest  that,  instead  of  prices 
following  the  extreme  fluctuations  of  both  metals,  prices 
will  always  be  governed  by  the  course  of  that  metal 
which,  at  the  time,  sinks  below  the  legal  ratio.  The 
standard,  as  Prof.  Jevons  remarks,  always  follows  the 
metal  that  falls. 

Hence,  as  M.  Wolowski1  insists,  the  variations  of 
value  under  the  alternative  standard  are  more  frequent, 
perhaps,  but  are  necessarily  reduced  in  extent ;  instead 
of  violent  fluctuations,  we  have  gentle  oscillations  about 
a  fixed  line.  On  this  point  M.  Wolowski  has  the  com- 
plete concurrence  of  Prof.  Jevons  in  England  and  of  the 
Germans  Roscher  and  Hau.  But  some  of  the  advocates 
of  bi-metallic  money  go  even  further,  and  claim  that  it 
is  practicable,  by  a  convention  of  the  principal  com- 
mercial nations  on  the  plan  of  the  Latin  Union,  to  es- 
tablish a  legal  ratio  between  gold  and  silver  which  shall 

1  "On  pretend  que  les  changements  sont  plus  grands  quand  on 
emploie  deux  metaux  pour  monnaie,  au  lieu  d'un,  car,  dit-on,  on  subit 
alors  les  variations  des  deux  metaux.  On  oublie  que  ces  variations, 
au  lieu  de  s'ajouter  et  de  grossir  en  se  cumulant,  se  moderent,  au  con- 
traire,  et  se  compensent.  Ce  qui  serait  plus  vrai,  ce  serait*  de  dire 
qu'avec  des  deux  metaux  les  variations  peuvent  £tre  plus  frequentes, 
mais  qu'elles  se  trouvent  forcement  beaucoup  plus  faibles,  en  se 
rapprochant  d'une  stabilite  parfaite,  autant  que  la  possibilite  materi- 
elle  le  permet  tandis  qu'avec  un  seul  metal,  les  ecarts  deviendraient 
peut-etre  un  peu  plus  rares,  mais  ils  se  produiraient  d'une  fa$on  plus 
vive,  en  risquant  d'alterer  1' expression  des  transactions  conclues  pour 
un  terme  quelque  peu  e*loigne.  La  stabilite  des  engagement  ne 
pourrait  qu'y  perdre."— [M.  Wolowski,  L'Or  et  L1  Argent,  p.  49.] 


258  MONEY. 

have  absolute  stability,  the  two1  metals  forming  what 
M.  Cernuschi  calls  electron,  and  both  thus  remaining 
in  circulation  at  tire  same  time  within  the  same  field. 

The  following  is  M.  Cernuschi's  theory  stated  in  his 
own  words  : 

"The  abundant  metal-Is  the  least  demanded.  Its 
tendency  is  to  be  depreciated,  while  the  scarcer  metal 
becomes  dearer.  But  it  is  evident  that,  if  to  increased 
production  we  can  continue  to  oppose  increased  de- 
mand, and  to  decreased  production,  decreased  demand, 
we  shall  maintain  the  equilibrium  and  things  will  remain 
unchanged.  This  is  precisely  what  we  propose  to  do. 
For  the  demand,  which,  without  the  adoption  of  the 
tariff  of  15y  would  be  directed  to  the  metal  which  is 
scarce,  would,  if  the  tariff  were  anywhere  in  force,  be 
directed  to  the  metal  that  is  abundant.  For,  if  the  bi- 
metallic law  permits  each  and  every  one  to  pay  his 
debts  at  will,  in  gold  or  silver,  every  one  must  see  that 
the  dealers  in  money  will  neglect  the  metal  which  is 
hard  to  find,  and  will  seek  for  that  which  is  plentiful,  to 
have  it  coined.  Moreover  the  scarce  metal,  if  it  is  not 
in  demand,  will  not  rise  in  price,  and  the  abundant 
metal,  if  active  demand  springs  up,  cannot  fall." — [Bank- 
er's Magazine,  N.  Y.,  Nov.,  1876.] 

M.  Cernuschi  has  advocated  his  theory  with  abun- 
dance of  wit  and  ingenuity ;  but  it  may  fairly  be  ques- 
tioned whether  he  has  not,  on  the  whole,  prejudiced  it 
in  public  estimation  by  the  extent  of  his  claim  for  the 
power  of  law  over  value. 

1  If  two,  why  not  ten  ?  Sure  enough :  M.  Cernuschi  is  nothing 
daunted  by  the  suggestion.  Find  him  the  metals  and  he  will  engage 
to  put  them  at  work,  harnessed  together  at  ratios  fixed  by  law: 
"Que  n'avous-nous  ia  fortune  de  posseder  dix  metaux  monetaires! 
Les  variations  dans  la  valeur  de  la  monnaie  seraient  presque  impossi- 
bles."—[Or  et  Argent,  p.  60.] 


THE  VALUE  OF  MONEY.  259 

Economists  have  been  too  much  disposed  to  treat 
slightingly  the  agency  of  law  in  determining  the  de- 
mand for,  or  the  supply  of,  articles  of  commerce.  Thus, 
Mr.  Kicardo  almost  invariably  refers  to  laws  prohibit- 
ing the  melting  down  of  coin,  or  the  export  of  bullion, 
as  if  they  were  absolutely  nugatory.  Mr.  Mill,  however, 
finds  himself  compelled  to  say:  "The  effects  of  the  pro- 
hibition cannot  have  been  so  entirely  insignificant  as  it 
has  been  supposed  to  be  by  writers  on  the  subject.  The 
facts  adduced  by  Mr.  Fullarton  show  that  it  required  a 
greater  percentage  of  difference  in  the  value  between 
coin  and  bullion  than  has  commonly  been  imagined,  to 
bring  the  coin  to  the  melting-pot." 

But  while  law  can  do  something,  in  the  way  of  affect- 
ing values,  it  cannot  do  everything ;  and  what  it  can  do 
is  rather  by  way  of  directing  or  diverting  economic 
forces,  than  of  squarely  opposing  their  current.  The 
impotence  of  government  when  it  sets  itself  to  contro- 
vert urgent  human  interests,  has  been  clearly  shown  in 
innumerable  instances.  We  shall  soon  be  called  to 
contemplate  the  strongest  governments  the  world  has 
ever  known,  completely  baffled  in  their  efforts  to  give 
currency  to  their  legal-tender  notes,  when  issued  great- 
ly in  excess,  no  brutality  of  punishment  proving  suffi- 
cient to  deter  the  subject  in  the  pursuit  of  gain  from 
evading,  or,  if  he  must,  defying,  the  requirements  of  the 
law. 

Hence,  when  the  bi-metallist  claims  for  the  law  force 
enough  to  establish  any  permanent  ratio  of  exchange, 
whatever,  between  gold  and  silver,  were  it  4 : 1  or  1 : 1, 
he  exposes  his  cause  to  unnecessary  prejudice. 

The  Austrian  economist,  Hertzka,  thus  attacks  this 
position,  using  M.  Cernuschi's  name : 

"Whether  now  Cernuschi  believes  that  it  costs,  and 


260  MONEY. 

must  always  cost,  just  fifteen  and  a  half  times  as  much 
to  produce  gold  as  to  produce  silver,  or  not,  we  cannot 
determine.  At  any  rate,  he  knows  that  for  the  cost  of 
producing  one  pound  of  gold,  several  pounds  of  silver 
can  be  produced.  What  happens  then,  when  the  law 
decrees  that  one  pound  of  gold  shall  exchange  for  one 
pound  of  silver  ?  Cernuschi  understands  perfectly  that 
the  value  of  the  circulating  medium  depends  on  the 
demands  of  business  and  the  amount  of  money.  He 
knows  and  makes  use  of  the  fact  in  arguing  for  his 
electron,  that  if  the  demands  of  business  remain  the 
same,  the  purchasing  power  of  the  stock  of  money  in 
the  country,  or  in  the  world,  remains  the  same.  He 
knows,  therefore,  that  the  ten  thousand  million  dollars 
stock  of  the  precious  metals  in  the  western  world  must 
possess  the  same  purchasing  power  as  now,  if  the  ratio 
of  value  between  the  two  metals  which  constitute  it 
were  altered.  Now  this  ten  thousand  million  dollars 
stock  of  the  precious  metals  is  made  up  of  seventeen 
million  pounds  of  gold  for  two-thirds  of  the  value,  and 
one  hundred  and  eighty  million  pounds  silver  for  one- 
third  of  the  value.  Hereafter,  therefore,  if  the  bi-me- 
tallic  electron  were  made  out  of  this  stock  there  would 
be  one  hundred  and  ninty-seven  million  pounds  of  it, 
worth  just  what  the  whole  is  now ;  that  is,  each  pound 
of  it  would  be  worth  fifty  dollars.  Bringing  the  two 
metals  to  an  equality  of  value,  therefore  (ratio  1:1), 
would  have  the  effect  of  more  than  doubling  the  value 
of  silver,  and  reducing  gold  to  less  than  one-seventh 
the  value  which  it  now  has  on  the  market.  What  would 
be  the  effect  on  production?  The  silver  miners  would 
see  their  returns  more  than  doubled.  Mines  which  for- 
merly did  not  pay,  would  now  pay  richly.  New  capital 
would  flow  into  silver  mining,  and  it  would  only  depe  nd 


THE  VALUE  OF  MONEY.  261 

on  the  extent  of  the  known  mines  and  the  amount  of 
disposable  capital  whether  the  silver  product  would  rise 
to  four  hundred,  five  hundred,  two  thousand  or  three 
thousand  million  dollars  per  annum.  The  contrary 
effect  would  be  felt  upon  gold.  Since  it  is  not  possible 
to  support  seven  laborers  with  the  product  which  one 
laborer  now  gets  from  a  gold  mine,  the  gold  mines 
would  be  abandoned,  and  the  production  of  gold  would 
cease  entirely,  unless  there  might  be  some  mines  so  rich 
that  one-seventh  of  their  present  yield  would  be  remun- 
erative to  the  labor  and  capital  they  employ. 

"Inasmuch  as  there  are  now  one  hundred  and  eighty 
million  pounds  of  silver  and  seventeen  million  pounds 
of  gold,  that  is  to  say,  gold  is  far  rarer  than  silver,  we 
cannot  assume  that  mankind  will  at  once  esteem  gold 
and  silver  in  every  respect  equal  because  a  law  of  bi- 
metalism  may  so  ordain.  There  will  probably  still  be 
human  beings  who  will  prefer  rings,  bracelets,  chains 
and  vessels  of  gold  more  highly  than  similar  objects  of 
silver.  As  things  are  now,  people  put  up  with  silver  for 
many  purposes  because  gold  is  so  much  dearer.  When 
bi-metalism  establishes  equality  between  the  two  met- 
als, many  people  will  carry  all  their  silver  plate  to  the 
mint  and  have  all  their  articles  of  luxury  made  of  gold 
obtained  for  it,  ounce  for  ounce.  We  must  doubt 
whether  the  seventeen  million  pounds  of  gold  now  in 
the  Occident  would  suffice  for  this  exchange.  There 
are  probably  fifty  million  pounds  of  silver  plate  in  ex- 
istence, and  unless  the  present  taste  of  the  human  race 
could  suddenly  be  changed,  people  would  present  a  de- 
mand for  gold,  at  the  rate  of  1 : 1,  in  order  to  get  gold 
plate  of  the  same  size  and  weight  as  their  present  silver 
plate  without  greater  cost,  which  would  at  once  exhaust 
the  whole  stock,  in  coin  or  other  forms.  This  danger  is 
22* 


262  MONEY. 

the  greater  since  the  Asiatic  peoples,  who  now  possess 
far  more  silver  than  gold,  might  be  tempted  by  the  ra- 
tio of  1 : 1  to  exchange  their  silver  ornaments  for  gold. 
They  would  prefer  gold,  although  the  Bi-metallists 
should  assure  them  that  it  was  worth  no  more  tharf  sil- 
ver. The  demand  for  goH  would  indeed  increase,  from 
the  fact  above  mentioned,  that  the  gold  mines  would  be 
unworked,  while  the  production  of  silver  would  be 
prosecuted  with  nearly  threefold  vigor.  Gold  is  con- 
sumed slowly  but  surely,  and  there  are  arts  which  con- 
sume it.  Some  might  therefore  fear  lest  gold  should 
disappear  from  the  earth,  and  might  hasten  to  buy  it 
with  silver.  The  universal  bi-metallic  system  thus 
pushed  to  an  extreme  could  not  sustain  itself  for  a  day, 
or  an  hour,  or  a  second." — [Wahrung  und  Handel : 
chapters  translated  and  published  in  the  "  N.  Y.  Even- 
ing Post,"  1877.] 

The  demonstration  is  complete ;  but  I  am  not  satis- 
fied that  Mr.  Hertzka  and  his  American  translator  are 
on  equally  firm  ground  when  they  argue  that  the  ex- 
treme case  of  1 : 1  affords  a  test  of  the  bi-metallic  the- 
ory, and  that,  if  it  be  found  to  fail  here,  it  would  fail  on 
any  ratio  assumed. 

I  heard  once  of  a  countryman  who  came  down  to  the 
railroad  to  take  his  first  ride,  bringing  with  him  a  favor- 
ite hound,  securely  fastened  with  a  collar  and  thong. 
On  being  told  that  the  dog  would  not  be  admitted  into 
the  car,  he  slyly  tied  the  animal  to  the  standard  of  the 
brake  at  the  rear  of  the  train,  and  took  his  seat  inside. 
In  the  language  of  Hood,  "it  was  the  dog  that  died." 
The  train  arrived  safely  and  on  time.  Now,  because  it 
is  not  a  success  to  tie  a  dog  at  the  rear  of  an  express 
train,  it  does  not  follow  that  two  horses  of  somewhat  un- 
equal powers  cannot  be  harnessed  and  driven  together. 


TEE  VALUE  OF  MONEY.  263 

There  never  were  two  horses  of  precisely  the  same  rate 
and  style  of  movement ;  yet  horses  are  driven  in  span. 
The  bi-metallic  theory  proposes  to  harness  two  metals  of 
somewhat  diverse  tendencies  value-wards,  and  to  drive 
them  together.  The  success  of  the  undertaking  will 
probably  depend  on  the  strength  of  the  impulse  to  diver- 
gence, as  compared  with  the  strength  of  the  carriage,  of 
the  harness  and  of  the  driver's  hand. 

Let  us  take  a  case:  During  1870,  the  average  market 
ratio  of  silver  to  gold  was  1 : 15.57 ;  during  1871,  1 : 15.58. 
Now  suppose  that,  while  the  true  market  ratio  was  1 : 
15.57,  this  had  been  established  as  the  legal  ratio  in  the 
coinage  of  all  civilized  nations;  and  that  immediately 
thereafter,  there  had  begun  to  operate  upon  the  sup- 
ply of,  or  the  demand  for,  one  or  the  other  of  the  met- 
als, the  forces,  which  did,  in  fact,  between  1870  and  1871, 
bring  about  the  ratio  1 : 15.58.  Would  the  fact  of  a 
fixed  legal  rating  so  widely  adopted  be  sufficient  to  re- 
strain that  movement  towards  a  change  in  the  market 
rating? 

I  cannot  see  any  reason  to  say  no,  when  it  is  consid- 
ered that,  at  any  given  time,  debts  to  the  amount  of 
thousands  of  millions  of  dollars  are  outstanding ;  while 
debts  to  the  amount  of  hundreds  of  millions  are  arriv- 
ing at  maturity  every  year  and  every  month.  Just  so 
soon  and  just  so  surely  as  silver,  for  instance,  tended  to 
become  cheaper,  from  causes  affecting  the  supply,  would 
the  desire  of  every  debtor  to  pay  with  the  cheaper  metal 
operate  upon  the  demand  for  that  metal,  bringing  it 
back  towards  the  legal  rating. 

Let  it  be  freely  granted  that  value  is  determined  in 
the  relation  between  demand  and  supply.  The  position 
of  the  Bi-metallists  is  that  government  can  influence 
the  demand  for  gold  and  silver  and  hence  influence  their 


264  MONEY. 

value,  through  its  power  to  make  either  or  both  a  legal 
tender  in  the  payment  of  debts.  Only  in  this  way, 
however,  as  I  apprehend  the  matter ;  at  least  I  do  not 
s.ee  how  the  establishment  of  a  fixed  legal  ratio  is  to 
operate  against  the  tendency  towards  divergence,  so 
far  as  the  body  of  currenf  purchases  are  concerned. 

When  Hertzka's  translator,  after  giving  his  demon- 
stration of  the  impossibility  of  keeping  gold  and  silver 
in  concurrent  circulation  at  a  ratio  far  wide  of  the  mar- 
ket ratio,  say  1 : 1,  draws  the  conclusion  that :  "In  what- 
ever degree  the  legally  fixed  ratio  should  differ  from  the 
market  ratio,  in  that  degree  the  results  described  would 
follow ; "  and  again :  "All  this  holds  true,  according  to  its 
measure,  of  any  other  legal  ratio  than  1:1,  if  it  were  not 
the  true  ratio  of  the  market,"  he  overlooks  the  impor- 
tant principle  stated'  by  Mr.  Mill,  that,  in  efforts  to- 
wards certain  ends,  "  small  means  do  not  merely  produce 
small  effects;  they  produce  no  effects  at  all." 


I  have  assumed,  for  purposes  of  illustration,  the  causes 
operating  to  produce  a  change  in  the  market  rate  to  be 
slight.  Thus,  I  compared  the  years  1870  and  1871,  when 
the  ratios  were  respectively  1 : 15.57  and  1 : 15.58.  It  is 
reasonably  certain  that  in  such  a  condition,  the  fixing  of 
the  former  ratio  universally,  by  law,  would  not  have  di- 
minished by  one  ounce  the  amount  of  gold  brought  into 
existence  in  1871 ;  first,  because,  with  capital  and  labor 
committed  to  the  production  of  gold,  so  slight  a  reduction 
in  the  profits  or  wages  of  the  occupation  would  not  close 
a  single  mine  or  contract  its  operations ;  and  secondly, 
because  in  a  degree  the  production  of  silver  involves  the 
production  of  gold,1  and  vice  versa.  But  the  efficiency 

1  Pliny  called  attention  to  the  fact  that,  in  his  day,  gold  and  silver 
were  invariably  found  together,  though  in  varying  proportions. 


THE  VALUE  OF  MONEY.  265 

of  such  a  measure  as  that  proposed  would  not  necessa- 
rily be  limited  to  a  condition  where  the  causes  operating 
on  the  supply  tended  to  bring  about  a  divergence  so 
slight  as  that  indicated.  It  is  entirely  reasonable  to 
suppose  that  a  tendency  to  a  very  considerable  diver- 
gence, operating  through  a  considerable  period  of  time, 
might  be  restrained  by  the  force  of  law  making  either 
metal,  indifferently,  tender  in  payment  of  debts.  Even  if 
we  are  not  prepared  to  assent  to  Mr.  Horton's  assertion1 
that  "Wolowski's  position  would  stand  the  shock  of  a 
second  Siberia,  Australia,  California,  or  all  combined," 
we  may  rationally  believe  that  the  consent  of  the  lead- 
ing commercial  nations2  in  establishing  a  ratio  of  ex- 
change between  gold  and  silver  would  operate  with  suf- 
ficient force  upon  the  demand  for  that  which  might  tend 
to  become  the  cheaper,  to  preserve  an  equality,  in  spite 

uln  every  species  of  gold,"  he  said,  "there  is  a  proportion  of  silver; 
in  some  one-tenth,  in  others  one-ninth,  in  others  one-eighth." 

Many  persons  speak  of  the  wonderful  silver  mines  of  Nevada  who 
are  not  aware  that  a  very  large  proportion  of  the  value  of  the  metal 
extracted  is  in  gold.  The  production  of  the  Comstock  Lode  is  stated 
to  be  about  45  per  cent,  in  gold  and  55  per  cent,  in  silver. — [See  Ee- 
port  of  Mr.  Groschen's  Committee,  Q.  478-88;  Chevalier,  La  Mon- 
naie,  pp.  362-4 ;  Seyd's  Bullion  and  Foreign  Exchanges,  pp.  136-7.] 

1  Silver  and  Gold,  144. 

3  "  En  1803,  on  a  evalue  le  taux  du  prix  du  change  entre  Tor  et 
1'argent  dans  la  proportion  de  1  a  15  et  derni;  malgre  les  variations 
enormes  de  la  production  des  metaux  precieux,  ce  rapport  est  encore 
eelui  qui  se  pratique  sur  le  marche  libre  en  1868.  Ajoutez  a  la 
solidarite  naturelle  qui  unit  les  deux  metaux  appeles  &  se  combiner 
dans  le  meme  office,  la  solidarite  legale  qui  resultera  de  1'adoption 
commune,  dans  tous  les  Etats  Civilises,  du  meme  taux  de  change 
entre  les  deux  monnaies,  et  les  legeres  oscillations  auxquelles  la 
valeur  relative  de  Tor  et  de  1'argent  a  ete  sujette  depuis  soixante-cinq 
ans,  deviendront  plus  rares  and  plus  restreintes  encore." — [M.  Wo- 
lowski,  L'Or  et  L'Argent,  p.  31.] 

23 


266  MONET. 

of  the  discovery  of  many  new  fields  of  production,  in 
spite  of  many  inventions  in  the  mechanical  and  metal- 
lurgical processes  involved  in  raising  the  metals  and 
bringing  them  to  market,  and  in  spite  of  wide  and  last- 
ing changes  in  the  demand  for  either  metal  for  use  in 
the  industrial  and  decorative  arts. 

The  extensive  fall  in  the  value  of  silver  since  1873, 
which  is  often  referred  to  as  proving  the  unfitness  of  sil- 
ver to  be  joined  with  gold  in  the  office  of  money,  ap- 
pears to  me  to  show  most  strikingly  the  power  of  legis- 
lation in  keeping  the  two  metals  together.  If  gold  and 
silver  actually  held  a  course  through  three  centuries  so 
nearly  parallel;  yet,  when  silver  was  demonetized  by 
the  United  States  and  Germany,  and  the  Latin  Union 
ceased  to  coin  silver  in  unrestricted  amount,  the  price 
of  gold,  expressed  in  terms  of  silver,  mounted  upwards  in 
four  years  from  15.63  to  17.77,  rising  momentarily  even 
to  20.17 :  these  two  facts  taken  in  connection  would  seem 
to  afford  a  very  strong  proof  of  the  effects  of  their  inter- 
changeable use  as  money,1  in  keeping  their  market  val- 
ues together.  As  Mr.  Bagehot  said  in  September,  1876 : 
"  The  cardinal  present  novelty  is,  that  silver  and  gold 
are,  in  relation  to  one  another,  simply  ordinary  commod- 

1  That  the  changes  in  the  comparative  purchasing  power  of  the 
two  metals  between  1873  and  1876  were  wholly  or  mainly  due  to 
changes  in  supply,  or  to  changes  in  demand  disconnected  from  the 
acts  of  governments  dealing  with  the  legal  relations  of  gold  and 
silver,  I  really  cannot  conceive  any  intelligent  and  candid  man  as 
now  maintaining.  That  it  was  so  held  in  perfectly  good  faith,  for  a 
year  or  two  after  the  demonetization,  I  do  not  doubt. 

"  Qu'on  suppose  les  Fran9ais  prenant  tout  a"  coup  le  vin  en  aver- 
sion, se  portant  a  admirer  les  peuples  adonnes  a  la  biere  et  voulant 
les  imiter :  il  est  certain  que  le  vin  se  deprecierait  et  que  le  prix  da 
la  biere  s'eleverait."  — [H.  Cernuschi,  Or  et  Argent,  p.  9.] 


THE  VALUE  OF  MONEY.  267 

ities.  Until  now  they  have  not  been  so.  A  very  great 
part  of  the  world  adhered  to  the  bi-metallic  system, 
which  made  both  gold  and  silver  legal  tender ;  which  es- 
tablished a  fixed  relation  between  them.  In  conse- 
quence, whenever  the  values  of  the  two  metals  altered, 
these  countries  acted  as  equalizing  machines.  They  took 
the  metal  which  fell ;  they  sold  the  metal  which  rose, 
and  thus  the  relative  value  of  the  two  was  kept  at  its 
old  point.  But  now  this  curious  mechanism  is  broken 
up.  There  is  no  great  country  now  really  acting  on  this 
system.  The  Latin  Union,  it  is  true,  adhere  to  the 
name;  but  they  have  abandoned  the  thing.  As  they 
do  not  allow  silver  to  be  coined  except  in  limited  quan- 
tities, they  have  no  longer  an  equalizing  action.  They 
no  longer  receive  the  depreciated,  and  part  with  the  ap- 
preciated, metal;  and  therefore  the  two  metals  are  now 
exchanged  for  one  another,  just  as  other  commodities. 
The  gold  pi*ice  of  silver  is  now  like  the  gold  price  of  tin,  for 
the  first  time  in  history,  without  artificial  regulation,  and 
free  from  tJie  manipulations  of  government."1 


But  while  the  Bi-metallists  assert  the  concurrent  cir- 
culation of  the  two  metals  to  be  good  as  a  permanent 
policy,  inasmuch  as  it  limits  the  extent  of  the  variations 
in  the  value  of  money,  they  have  an  argument  of  per- 
haps even  greater  force,  one  certainly  which  appeals 
more  strongly  to  the  popular  mind,  in  the  considera- 
tion that,  both  metals  having  been  so  widely  in  use 
under  fixed  ratios,  the  disestablishment  of  silver  and 
its  reduction  to  the  rank  of  mere  merchandise  must 
suddenly  and  largely  diminish  the  supply  of  money 

1  The  Economist,  Sept.  2,  1876. 


268  MONEY. 

available  for  the  payment  of  debts  and  permanent 
charges  of  all  sorts,  private  or  national,  contracted  un- 
der a  money  of  both  metals.  We  have  already,  in 
Chapter  IV,  dwelt  very  fully  on  the  economical  effects 
of  an  increase  in  the  Money-supply,  inciting  to  a  tem- 
porary activity  in  production,  as  well  as  diminishing  the 
burden  of  obligations  derived  from  the  past,  in  favor 
generally  of  the  industrial  classes.  The  object  of  the 
Bi-metallists — at  least  of  the  European  Bi-metallists l — 
is  not  so  much  to  favor  the  debtor  class  by  diminishing 
the  weight  of  debts,  as  to  prevent  those  debts  being  ar- 
tificially increased  by  a  diminution  in  the  stock  of 
money,  through  the  demonetization  of  one  of  the  pre- 
cious metals. 

"It  maybe  safely  asserted,"  says  Mr.  Laveleye,  "that 
the  demonetization  of  silver  is  a  great  injustice,  since  it 
modifies  all  contracts  to  the  detriment  of  those  whose 
interests  are  most  worthy  to  be  considered,2  viz.,  the 
debtors." 

We  have  already  dwelt  so  fully  on  the  consequences 
of  a  reduction  in  the  Money-supply  of  the  world,  that 
it  is  only  necessary  to  point  out  the  relation  of  the  sub- 
ject to  the  question  of  the  so-called  single  or  double 

1  I  say  the  European  Bi-metallists,  because  it  is  not  to  be  con- 
cealed that  the  party  here  is  largely  re-inforced  from  the  ranks  of 
the  inflationists  and  repudiationists  of  the  political  struggles  of  1868, 
1874,  and  1876.  It  is  a  misfortune  of  the  present  position  of  those  who 
disinterestedly  advocate  bi-metalism  in  the  United  States,  that  they 
have  such  associates.  The  fact,  however,  furnishes  no  just  cause  for 
misrepresenting  their  views. 

3  "  Laveleye  is,  indeed,  right,"  remarks  Hertzka,  "  so  far  as  he 
makes  the  point  that  the  debtors  are,  in  general,  the  active  producers, 
while  the  creditors,  whether  for  large  or  small  amounts,  are  in  gen- 
eral passive  consumers." — [N.  Y.  Evening  Post's  translation.]  On 
this  point,  see  pp.  89-94. 


THE  VALUE  OF  MONEY.  269 

standard.  Mr.  Seyd  estimates1  that  the  stock  of  gold 
and  silver  now  current  as  coin,  or  existing  as  bullion,  is 
6,750  millions  of  dollars,  of  which  3,250  millions  is  in 
silver.  Assuming  that  700  millions  of  silver  would  re- 
main in  use  after  the  adoption  of  the  single  gold  stand- 
ard by  the  nations  commonly  known  as  civilized,  Mr. 
Seyd  reaches  the  result  that  the  Money-supply  would 
be  reduced  38  per  cent,  by  the  demonetization  of  silver. 
"The  total  production  of  both  metals,"  says  Mr.  Lave- 
leye,  "has  remained  stationary  during  the  past  nine 
years,  and  in  the  last  two  years  it  has  rather  declined. 
Is  this,  then,  the  time  to  prohibit  the  use  of  one  of 
these  metals?" 

It  was  the  argument  from  the  effects  of  a  diminution 
of  the  Money-supply  which  mainly  determined  the 
mind  of  Hamilton,  with  whom  Jefferson  and  Gallatin 
concurred,  in  favor  of  the  concurrent  use  of  the  two 
metals. 

"Upon  the  whole,  it  seems  to  be  most  advisable,  as 
has  been  observed,  not  to  attach  the  unit  exclusively  to 
either  of  the  metals:  because  this  cannot  be  done  ef- 
fectually without  destroying  the  office  and  character  of 
one  of  them  as  money,  and  reducing.it  to  the  situation 
of  a  mere  merchandise.  ...  To  annul  the  use  of 
either  of  the  metals  as  money  is  to  abridge  the  quantity 
of  circulating  medium,  and  is  liable  to  all  the  objections 
which  arise  from  a  comparison  of  the  benefits  of  a  full 
with  the  evils  of  a  scanty  circulation."— [A.  Hamilton, 
Keport  on  the  Mini] 

These  objections  are  not  of  less  force  than  in  Mr. 
Hamilton's  day.  On  the  contrary,  they  have  acquired 
greater  importance  with  the  vast  extension  of  imperial, 

1  N.  Y.  Banker's  Magazine,  April,  1877. 


270  MONEY. 

national,  state,  and  municipal  indebtedness  which  has 
characterized  the  present  century.  Whatever  makes  it 
harder  to  pay  the  war  debts  of  the  world,  and  the  obli- 
gations contracted  for  purposes  of  public  display  or 
public  convenience,  works  great  injury  to  all  productive 
interests,  discourages  enterprise,  and  breeds  pauper- 
ism.1 This  is  not  a  consideration  to  be  put  out  of  sight 
because  of  the  greater  convenience  and  simplicity  of 
operation  which  the  Mono-metallists  think  they  find  in 
the  use  of  gold  as  the  sole  money  of  commerce.  I  do 
not  say  that  no  considerations  could  outweigh  this  in- 
crease of  the  burden  of  existing  debts.  I  agree  with 
Mr.  Horton,2  that  it  is  a  practical  question,  in  which  ad- 
vantages and  disadvantages  should  be  fairly  balanced  ; 
and,  that  this  may  be  done,  it  is  very  desirable  that 
the  question  should  be  discussed  without  excitement  or 
prejudice. 

The  question  is  also  largely  a  political  one.  The  con- 
currence of  the  Latin  Union,  Germany,  Great  Britain 
and  the  United  States  would,  I  do  not  question,  estab- 
lish a  bi-metallic  money  on  a  durable  basis,  subject  to 
change  only  in  the  event  of  developments  of  a  revolution- 
ary nature,  not  to.be  anticipated,  in  the  production  of 
the  precious  metals.  But  the  very  mention  of  such  a 
condition  shows  how  largely  the  question  is  political. 

1  "La  suppression  de  1' argent  amenerait  une  revolution  veritable. 
L'or,  appele  a  regif  seule  le  marche  universel,  augmenterait  de  valeur 
dans  une  progression  rapide  et  constante,  qui  porterait  atteinte  a  la 
foi  des  contrats,  et  qui  aggraverait  la  situation  de  tous  les  debiteurs, 
a  commencer  par  1'Etat." — [M.  Wolowski,  L'Or  et  L' Argent,  p.  29.] 

2  "  It  is  a  purely  practical  question  whether  substantial  unity  with 
bi-metallic  money  is  more  for  the  interest  of  the  world,  than  mathe- 
matical and  metrical  unity  with  the  adoption  of  the  single  gold 
standard." — [Silver  and  Gold,  p.  143.] 


THE  VALUE  OF  MONEY.  271 

What  is  the  likelihood  of  Great  Britain  retracing  the 
course  in  which  she  has  persisted  since  1816?  Small 
as  is  the  likelihood  of  that  being  done,  I  should  be  dis- 
posed to  believe  it  far  more  probable  than  that  Ger- 
many would  rescind  her  recent  course,  acknowledge  be- 
fore French  economists  her  error,  and  join  her  late  en- 
emy in  a  monetary  convention  to  put  gold  and  silver 
on  the  basis  which  Napoleon  established.  But  all 
these  are  political  considerations  which  have  no  place 
in  an  economical  treatise. 


PART    II. 

INCONVERTIBLE  PAPER  MONEY 


CHAPTEK  XIV. 

THE  THEORY  OF  INCONVERTIBLE  PAPER  MONEY. 

IT  has  been  rather  the  fashion  with  political  econo- 
mists to  refuse  the  name  Money  to  any  medium  of  ex- 
change which  is  not  "a  material  recompense  or  equiva- 
lent." 1  It  is,  however,  fairly  to  be  questioned  whether 
anything  is  hereby  gained  in  scientific  precision,  or  for 
the  popular  understanding  of  the  subject.  For  myself, 
I  can  see  no  valid  objection  to  the  scientific  acceptance 
of  the  popular  term,  Paper  Money.  The  presence  of  the 
word  paper  so  far  qualifies  and  explains  the  word  mon- 
ey,2 as  to  show  that  a  material  recompense  or  equiva- 
lent is  not  meant.  No  one  is  likely  to  be  misled  by  the 
use  of  the  term ;  nor  am  I  confident  that  this  use  of  the 
term  does  not  conform  to  the  highest  conception  of  the 
Money-function.  Certainly,  the  word  Currency  has 
proved  a  most  disastrous  substitute,  inducing  infinite 

"  La  monnaie  n'est  done  point  un  signe ;  c'est  un  corps,  une  sub- 
stance precieuse ;  je  ne  saurais  trop  le  redire,  c'est,  en  meme  temps, 
une  mesure  commune  des  valeurs,  et  un  equivalent" — [M.  Chevalier. 
La  Monnaie,  p.  56.]  "Get  attribut  d' equivalent  est  essentiel  a  la 
monnaie." — [Ibid.] 

'2  Whether  we  should  speak  of  anything  which  is  not  a  material 
recompense  or  equivalent,  as  Money,  without  the  qualifying  word, 
paper,  is  a  question  which  we  can  best  discuss  when  we  come  to 
speak  of  convertible  paper  money,  i.  e.}  bank-notes. 


276  MONEY. 

confusion  and  contradiction.  By  the  word  Inconvertible, 
in  this  connection,  is  meant  that  the  paper,  whatever  it 
promises  and  however  it  is  guaranteed,  is  not,  in  fact, 
whatever  be  the  fiction  of  law,  subject  to  conversion,  011 
the  demand  of  the  holder,  into  metallic  money. 

While  some  political  economists,  as  has  been  said, 
deny  the  propriety  of  applying,  with  or  without  qualifi- 
cation, the  word  money  to  any  medium  of  exchange 
which  is  not  a  material  recompense  or  equivalent,  others 
admit  the  use  of  the  word  as  applied  to  paper  resting 
upon  authority,  that  is,  to  the  issues  of  government,  but 
not  as  applied  to  paper  resting  upon  confidence,  that  is, 
to  the  issues  of  banks.  The  distinction  is  thus  express- 
ed by  Mr.  Huskisson :  "  Paper  resting  upon  confidence 
is  what  I  have  described  as  circulating  credit,  and  con- 
sists in  engagements  for  the  payment  on  demand  of  any 
specific  sums  of  money,  which  engagements,  from  a  gen- 
eral trust  in  the  issuers  of  such  paper,  they  are  enabled 
to  substitute  for  money  in  the  transactions  of  the  com- 
munity. Paper  resting  upon  authority1  is  what,  in 
common  language,  is  called  paper  money,  and  consists 
in  engagements  issued  and  circulated  under  the  sanction 
and  by  the  intermediate  intervention  of  the  public  pow- 
er of  the  state.  Paper,  such  as  alone  used  to  be  current 
in  Great  Britain  before  the  restriction  on  the  Bank,  was 
strictly  circulating  credit.  The  paper  current  in  Aus- 
tria, Kussia,  etc.,  is  properly  denominated  paper  money." 
— [Depreciation  of  the  Currency,  p.  3.] 

Inconvertible  Paper  Money  is  often  discussed  as  if  it 

1  Prof.  Storch  makes  the  same  distinction  :  "  On  reserve  le  nom  de 
papier-monnaie  a  des  billets  que  le  souverain  ordonne  de  recevoir  en 
payement  a  la  place  du  numeraire  metallique." 

Billets  de  banque,  Prof.  Storch  characterizes  as  billets  de  confiance. 


THEORY  OF  INCONVERTIBLE  PAPER  MONEY.  277 

resulted  from  a  degeneration  of  convertible  paper  money. 
But  this  has  not  been  the  case  historically  in  the  greater 
number  of  instances  where  Inconvertible  Paper  Money 
has  come  into  existence.  It  appears  to  me,  moreover, 
that  we  get  a  much  better  view  of  the  nature  and  op- 
erations of  such  money  by  taking  up  the  inquiry  close 
upon  our  analysis  of  the  effects  of  seigniorage  upon 
price.1 

Several  expressions  of  Mr.  Eicardo  have  already  been 
quoted  to  the  effect  that  a  bank-note  may  be  regarded 
as  a  coin  upon  which  the  seigniorage  is  enormous,  ex- 
tending to  its  whole  nominal  amount.  While  some  ex- 
ception might  possibly  be  taken  to  this  statement  re- 
garding a  bank-note,2  there  can  be  none  to  its  application 
to  government  paper.  We  said  that,  by  Mr.  Kicardo's 
reasoning,  a  seigniorage  of  10  per  cent.,  or  even  of  50  per 
cent.,  on  coin  would  not  alter  the  purchasing  power  of 
each  piece,  provided  only  the  pieces  were  not  supplied 
in  excess  of  the  amount  of  money  of  full  value  which 
would  circulate  as  the  community's  distributive  share 
of  the  world's  stock  of  money. 

No  more,  if  we  suppose  the  seigniorage  to  be  carried 
out  to  100  per  cent.,  and  instead  of  debased  coin,  pieces 
of  paper  to  be  issued,  costing  so  little  in  their  produc- 
tion that,  for  purposes  of  economical  reasoning,  we  may 
say  they  cost  nothing,  would  the  purchasing  power  of 
each  piece  be  diminished,  provided  the  pieces  were  not 
issued  in  excess.  Upon  this  point  there  is  substantial 
unity  among  economists.3 

1  See  pp.  190-7. 

2  Because  of  the  reserves  of  coin  necessary  to  keep  up  a  bank-note 
circulation,  which  must,  in  any  philosophical  view  be  regarded  as 
entering  into  the  cost  of  the  bank-notes  so  circulated. 

3  Mr.  Tooke   states  that   depreciation  is  not  a  necessary  conse- 
quence of  inconvertibility. 


278  MONEY. 

"It  is  on  this  principle,"  says  Mr.  Bicarclo,  "that  pa- 
per money  circulates.  The  whole  charge  for  paper 
money  may  be  considered '  as  seigniorage.  Though  it 
has  no  intrinsic  value,  yet  by  limiting  its  quantity  its 
value  in  exchange  is  as  great  as  an  equal  denomination 
of  coin,  or  of  bullion  in  that  coin.  .  .  .  On  these  prin- 
ciples it  will  be  seen  that  it  is  not  necessary  that  paper 
money  should  be  payable  in  specie  to  secure  its  value : 
it  is  only  necessary  that  its  quantity  should  be  regulated 
according  to  the  value  of  the  metal  which  is  declared  to 
be  the  standard.  If  the  standard  were  gold  of  a  given 
weight  and  fineness,  paper  might  be  increased  with 
every  fall  in  the  value  of  gold,  or,  which  is  the  same 
thing  in  its  effects,  with  every  rise  in  the  price  of  goods. 

"Dr.  Smith,"  he  continues,  "appears  to  have  forgotten 
his  own  principle  in  his  argument  on  Colony  Currency.1 

Mr.  James  Wilson  remarks  that  if  inconvertible  paper  be  kept 
somewhat  below  the  amount  of  the  currency  required,  "  there  is  no 
reason  whatever  why  such  notes  should  suffer  depreciation." — [Cap- 
ital, Currency  and  Banking,  p.  42.] 

"Experience,"  says  Prof.  Price,  "has  proved  that  it  need  not  of 
necessity  suffer  any  depreciation  of  value." — [Principles  of  Currency, 
p.  156.] 

"  La  valeur  de  ce  papier,  resultant  uniquement  de  1'iisage  auquel  il 
sert,  est  limitee  par  cet  usage  meme.  Si  les  emissions  etaient  me- 
diocres,  le  papier-monnaie  pourrait  valoir  autant  que  la  monnaie 
metallique." — [M.  Courcelle-Seneuil,  Operations  de  Banque,  p.  370.] 

1  Prof.  Summer  appears  to  have  followed  Dr.  Smith  in  his  criticism 
of  the  notes  of  the  Land  Bank  of  Massachusetts.  "  A  note  for  $1 
payable  twenty  years  hence  in  gold,  without  interest,  when  interest 
is  3  per  cent,,  is  worth  55  cents;  or,  if  interest  is  6  per  cent.,  31 
cents." — [Hist.  Am.  Currency,  p.  29.]  This  is  to  look  on  these  notes 
as  an  investment,  and  not  as,  what  they  were  intended  to  be,  money 
circulating  from  hand  to  hand.  In  the  same  vein,  Mr.  Horton  says 
of  the  greenbacks,  "  Present  payment  in  silver  is  more  desirable  than 
future  payment  in  gold." — [Silver  and  Gold,  p.  61.]  That  does  not 
appear.  Indeed,  the  market  quotations  contradict  the  statement. 


THEORY  OF  INCONVERTIBLE  PAPER  MONEY.  279 

Instead  of  ascribing  the  depreciation  of  that  paper  to 
its  too  great  abundance,  he  asks  whether,  allowing  the 
colony  security  to  be  perfectly  good,  a  hundred  pounds, 
payable  fifteen  years  hence,  would  be  equally  valuable 
with  a  hundred  pounds  to  be  paid  immediately.  1  an- 
swer yes,  if  it  be  not  too  abundant." — [Pol.  Econ.] 

This  statement  needs,  however,  to  be  carefully  guard- 
ed by  the  proviso  which  was  offered  l  in  respect  to  a  de- 
based coinage,  viz.,  that  the  popular  distrust  or  dislike 
of  the  money  be  not  excited2  to  the  extent  of  driving  the 
people  down  to  barter,  in  which  case  an  amount  of  mon- 
ey, whether  of  paper  or  of  debased  coin,  not  in  excess 
of  the  amount  of  a  money  of  full  value  which  would 
freely  circulate,  may  become  redundant,  whereupon  de- 
preciation will  follow. 

This  proviso,  which  is  often  wholly  neglected 3  in  dis- 
cussions respecting  Inconvertible  Paper  Money,  is  of 
capital  importance. 

It  has  been  said  that  historically  we  do  not  find  that 
Inconvertible  Paper  Money  has  usually  originated  in  a 
degeneration  of  paper  money  which  was  once  convert- 
ible. We  may  have  occasion  to  note  instances  of  the 
latter  kind  when  we  come  to  speak  of  convertible  paper 

1  See  pp.  197-204. 

2  This  is  not  at  all  a  matter  of  course.     "  Discredit,"  says  Mr.  Tooke, 
"  is  not  an  essential  element  in  variations  of  the  value  of  an  incon- 
vertible paper."— [History  of  Prices,  1839-47,  177.] 

3  Thus  Prof.  Price  writes  :  "  The  public  has  a  certain  definite  want 
for   notes  to  use   in   the  daily  operations  of   buying  and    selling" 
[Principles  of  Currency,  p.  156.] ;    and  in  the  immediate  connection 
adds :  "  It  is  plain  that  the  prohibition  to  pay  the  notes  can  make  no 
difference  in  the  extent  of  the  use  which  exists  for  the  notes;  so  far 
as  this  reaches,  it  is  immaterial  whether  the  notes  will,  or  will  not, 
be  paid  on  demand." — [P.  157.] 


280  MONEY. 

money  [Part  III] ;  but  for  the  present  let  us  consider 
only  those  in  which  governments,  generally  to  meet  the 
exigencies  of  state,  most  frequently  in  war,  but  also,  in 
not  a  few  instances,  for  purposes  of  peaceful  expendi- 
ture, and  sometimes  with  the  Avowed  object  of  furnish- 
ing a  plentiful  and  cheap  medium  of  exchange,  have  put 
forth  paper  money,  having  the  quality  of  legal  tender  in 
payment  of  debts  between  man  and  man,  and  generally 
receivable  at  the  treasury1  in  payment  of  taxes  and 
other  obligations  from  the  citizen,  or  subject,  to  the 
state,  without  any  provision  being  made  for  the  conver- 
sion of  such  paper  money  into  the  coin  of  the  country. 


Can  Inconvertible  Paper  Money  measure  values? 

We  have  reached  a  point  which  requires  us  to  go 
back  to  the  analysis  of  th£  Money-function  [Chapter  I]. 
At  ih'e  time,  warning  was  given2  that  the  necessity  might 
arise  for  re-opening  the  question  as  to  a  measure  of  val- 
ue. Inasmuch  as  primitive  money,  constituting  as  it 
does  a  material  equivalent  or  recompense,  possesses 
value  in  itself  (according  to  the  usual  significance  of 
that  phrase),  the  notion  has  arisen  and  has  become  al- 
most universal,  that  money  serves  as  a  measure  of  value, 
as  yard-sticks  and  bushel-measures  serve  respectively 
as  measures  of  length  and  of  capacity.3  On  the  first 

1  "Note  the  effect  produced  upon  the  circulation  of  the  paper 
money  of  China  by  the  government  refusing  to  receive  it  in  pay- 
ment of  taxes." — [P.  303,  note.] 

2  Pp.  9-10. 

3  Un  instrument  de  mesure,  a  moins  d'impossibilite  absolue,  ce  qui 
n' arrive  pas  pour  la  monnaie,  doit  etre  de  meme  nature  que  la  chose 
qu'il  sert  a  mesurer ;  il  doit  etre  long  si  cette  chose  est  longue.  pesant 
si  elle  est  pesante,  capable  si  elle  est  capable,  etc.,  etc.,  comme  le 


THEORY  OF  INCONVERTIBLE  PAPER  MONEY.  281 

occasion  when  we  had  to  meet  this  notion,  we  put  it 
over  as  not  essential  to  be  considered  in  dealing  with 
metallic  money  of  full  value. 

Again,  when,  after  dealing  with  metallic  money  of  full 
value,  we  came  to  deal  with  the  subject  of  seigniorage, 
and  to  contemplate  a  debased  coinage  in  circulation,  the 
question  instinctively  arose,1  how  such  money  could 
possibly  measure  values?  and  this  time,  again,  the  dis- 
cussion was  postponed. 

We  must  now  fairly  meet  the  issue  and  settle  it,  if  we 
are  to  have  any  peace  in  the  further  course  of  our  in- 
quiry into  the  principles  of  money.  Fairly  to  start  with 
the  question,  let  us  take  up  again  the  statements  of  the 
economists  whom  we  quoted  on  this  subject  in  our  first 
chapter. 

"At  what  rate,"  writes  Prof.  Jevons,  "is  any  exchange 
to  be  made?  ....  Hoiv  much  beef  for  how  much 
flax,  or  how  much  of  any  one  commodity  for  a  given  quan- 
tity of  another?  In  a  state  of  barter  the  price-current 
list  would  be  a  most  complicated  document,  for  each 
commodity  would  have  to  be  quoted  in  terms  of  every 
other  commodity,  or  else  complicated  rule-of-three  sums 

would  become  necessary All  such  trouble 

is  avoided,  if  any  one  commodity  be  chosen  and  its  ratio 

metre,  comme  le  gramme,  comme  le  litre,  qui  sont  respectivement 
long,  pesant  et  capable.  La  monnaie  est  dans  le  meme  cas;  c'est 
ce  qui  fait  dire  aux  economistes  qu'elle  doit  etre  une  marchandise, 
c'est-a-dire,  une  richesse,  puisque  les  marchandises  sont  des  richesses. 
Mais  la  richesse  qui  est  caracterisee  a  la  fois  par  le  travail  et  utilite, 
deux  choses  subordonnees  aux  circonstances  si  variables  de  la  pro- 
duction et  de  la  consommation,  est  essentiellement  variable;  variable 
par  consequent  doit  etre  1'instrument  qui  sert  a  la  mesurer." — [Th. 
Mannequin,  La  Monnaie  et  la  Double  Etalon.] 
1  See  p.  190. 


282  MONEY. 

of  exchange  with  each  other  commodity  be  quoted.  .  . 
The  chosen  commodity  becomes  a  common  denominator, 
or  common  measure  of  value,  in  terms  of  which  we  esti- 
mate the  values  of  all  other  goods,  so  that  their  values 
become  capable  of  the  most  easy  comparison." — [Money 
and  the  Mech.  of  Ex.,  pp.  5-6.] 

And  Prof.  Eogers  says  :  "  A  little  reflection  will  show 
that  some  measure  of  value  must  needs  be  adopted  in 
all  societies  whose  condition  is  superior  to  mere  barbar- 
ism  Even  if  money  were  not  a  physical  ob- 
ject, it  would  still  be  necessary  as  a  symbol  or  calculus. 
We  need  some  common  measure  of  value,  as  we  need  meas- 
ures of  length  and  capacity." — [Pol.  Econ.,  p.  22.] 

And  Mr.  Mill  writes  of  the  inconveniences  of  barter : 
"The  first  and  most  obvious  would  be  the  want  of  a 
common  measure  of  values  of  different  sorts.  If  a  tailor 
had  only  coats  and  wanted  to  buy  bread  or  a  horse,  it 
would  be  very  troublesome  to  ascertain  how  much  bread 
he  ought  to  obtain  for  a  coat,  or  how  many  coats  he  should 
give  for  a  horse.  The  calculation  must  be  recommenced 
on  different  data  every  time  he  bartered  his  coats  for  a 
different  kind  of  article,  and  there  could  be  no  current 
price  or  regular  quotations  of  value.  Whereas  now 
each  thing  has  a  current  price  in  money,  and  he  gets 
over  all  difficulties  by  reckoning  his  coat  at  £4  or  <£5, 
and  a  four  pound  loaf  at  Qd.  or  7d"— [III,  7,  1.] 

I  have  already  remarked  upon  the  confusion  which 
prevails  in  the  statements  of  these  writers  respecting 
this  function  of  money,  as  shown  more  conspicuously  in 
the  extended  passages  quoted  in  Chapter  I.  These 
economists,  eminent  for  their  general  correctness  of 
thinking  and  accuracy  of  expression,  have  here,  after 
showing  the  desirableness  of  a  "common  denominator" 
(Jevons),  "a  unit  of  calculation"  (Mill),  "a  symbol  or 


THEORY  OF  INCONVERTIBLE  PAPER  MONEY.  283 

calculus"  (Rogers),  at  once  concluded  that  one  of  the 
functions — in  the  view  of  Prof.  Bowen1  the  most  impor- 
tant function — of  money  is  to  serve  as  a  measure  of  value. 
And  clearly,  as  Prof.  Bowen  states,  if  money  is  to  meas- 
ure value,  it  must  itself  possess  value,  as  that  which 
measures  length  or  capacity  possesses  length  or  capac- 
ity.2 

That  a  common  denominator  is  not  necessarily  a 
measure  has  been  shown.3  But  let_us  look  further  into 
the  matter. 

In  examining  the  text-books  on  the  subject  of  Money, 
it  is  noticeable  that  in  almost  all  the  illustrations  given 
of  primitive  exchange,  one  person  of  a  trade  is  assumed 
to  be  dealing  with  a  single  member  of  another  trade; 
and  the  writer  directs  the  attention  of  his  readers  solely 
to  these  two  parties  to  the  exchange  actually  effected. 

1  "  We  can  do  without  money  as  a  medium  of  exchange,  and  can 
even  barter  commodities  for  other  commodities  without  the  use  of 
any  medium.      But  we  cannot  do  without   money  as   a  common 
standard  or  measure  of  value." 

2  "  A  measure  must  be  homogeneous  with  the  thing  measured  •  as 
that  which  measures  length  or  capacity  must  itself  possess  length  or  ca- 
pacity, so  that  which  measures  value  must  have  value  in  itself.'11 — [Prof. 
Bowen,  Pol.  Econ.,  p.  293.] 

Un  objet  destine  a,  etre  mesure  de  valeur  doit  necessairement  avoir 
une  valeur  lui-meme. — [Art.  Argent,  Kepertoire  Generale  d'^con- 
omie,  Sandelin.] 

"  How  was  the  tailor  to  discover  how  many  loaves  he  ought  to  get 
for  his  coat,  or  the  mason  to  learn  how  much  brickwork  he  was  to 
make  for  the  garment?"  .  .  .  "It  [money]  supplied  the  indis- 
pensable convenience  of  a  measure  of  value ;  it  provided  the  means 
for  learning  the  comparative  worth  of  every  commodity.  This  com- 
parative worth  is  measured  ~by  identically  the  same  process  as  that  by 
which  the  length  or  weight  of  anything  is  ascertained." — [Price,  Prin- 
ciples of  Currency,  pp.  39-40.] 

8  See  pp.  7-10. 


284  MONEY. 

It  is  the  hatter,  the  baker,  the  tailor.  But  is  not  this  to 
render  a  correct  analysis  impossible,  by  the  very  condi- 
tions of  the  case  ?  Is  not  Competition  of  the  essence  of 
trade,  at  least  in  that  state  of  industrial  society  in  which  | 
money  appears  ?  I  deal,  indeed,  with  but  one  tailor,  or 
hatter,  or  baker,  in  any  single  transaction ;  but  it  is  be- 
cause there  are  two  tailors,  two  hatters,  two  bakers,  or 
three,  or  five,  or  more,  than  I  am  able  to  answer  Prof. 
Jevons's  question,  how  much  of  any  one  commodity  for 
a  given  quantity  of  another?  Mr.  Mill  asks,  how  much 
bread  ought  the  tailor  to  obtain  for  a  coat ;  how  many 
coats  should  he  give  for  a  horse  ?  The  answer  is,  he 
ought  to  get  as  much  bread  as  any  one  baker,  having,  at 
the  time  and  in  his  place,  more  need  for  a  coat  than  any 
other  baker  of  the  town  or  the  neighboring  towns,  will 
give  him  for  the  coat  he  has  to  sell ;  he  should  give  as 
many  coats  for  a  horse  as  he  finds  he  has  to  do,  after 
numerous  owners  of  horses,  having  severally  visited  nu- 
merous tailors,  have  come,  each  for  himself,  to  the  deci- 
sion how  many  coats,  at  the  lowest, 'such  a  horse  as  the 
tailor  wants  to  buy,  is  worth. 

Now,  is  any  common  measure  of  value  needed  for  the 
purpose  of  the  above-contemplated  exchanges? 

The  statement  that  money  is  needed  as  a  measure  of 
value  in  exchange,  is  based  upon  the  notion,  of  the  gen- 
esis of  which  it  would  be  difficult  to  give  an  account, 
that  each  person,  having  in  hand  something  from  which 
he  is  willing  to  part,  and  having  in  view  many  things, 
which,  in  differing  degrees,  he  wishes  to  obtain,  can  more 
easily  determine  the  amount  of  labor  involved  in  the 
production  of  the  one  article — money,  than  he  can  suc- 
cessively determine  the  amount  of  labor  involved  in  the 
production  of  the  various  articles  which  he  may,  now 
and  then,  here  and  there,  desire  to  obtain  with  the  pro- 


THEORY  OF  INCONVERTIBLE  PAPER  MONEY.  285 

ceeds  of  liis  industry ;  while  each  other  producer  in  turn 
is  able  to  compare  the  amount  of  labor  in  his  own  prod- 
uct with  that  contained  in  a  given  quantity  of  this  one 
article — money — which  thus  becomes  the  common  meas- 
ure of  value  for  all  commodities.  The  prices  (i.  e.,  the 
values,  in  terms  of  money,)  of  all  articles,  being  thus 
commonly  measured,  become  mutually  comparable. 

If  the  term,  common  measure  of  value,  has  any  sig- 
nificance, it  is  this:1  no  less:  no  more. 

This  is  not,  however,  even  in  theory,  the  process  by 
which  the  relative  values  of  articles  brought  to  market 
are  determined.  The  rates  at  which  articles  shall  be  re- 
spectively exchanged  are  reached  through  the  relations 
of  supply  to  demand.  "When  the  economist  says  that, 
as  a  rule,  equal  amounts  of  labor  are  exchanged  against 
each  other  in  trade,  he  means  no  more  than  that,  if,  in 
the  existing  relations  of  supply  to  demand,  the  prod- 
ucts of  labor  in  one  occupation  fail  to  command  the 
products  of  an  equal  amount  of  labor  in  another  occupa- 
tion, labor  and  capital  will  pass  from  the  occupation 
whose  products  are  at  a  disadvantage  in  exchange,  into 
the  occupation  whose  products  have  the  advantage  in  ex- 
change, until  the  equilibrium  is  restored.  It  is  only 
when  laborers  find  that,  by  working  at  one  occupation, 
they  get  for  themselves  fewer  of  the  comforts,  luxuries, 
and  necessaries  of  life  than  they  would  by  working  in 
another  occupation,  that  transfer  of  labor  takes  place, 
and  the  supply  of  the  products  of  the  former  occupation 
is  diminished  till  their  price  rises  to  a  point  which  al- 
lows wages  to  be  paid  equal  to  those  received  by  la- 
borers elsewhere.  Now,  money,  as  the  common  denomi- 

1  "  The  cost  price  of  the  goods  is  compared  with  the  cost  price  of 
the  gold." — [Prof.  Price,  Principles  of  Currency,  p.  159.] 
24* 


286  MONEY. 

nator  of  values,  allows  the  laborer  with  great  ease  and 
accuracy  to  determine  whether  he  is  receiving  less  or 
more  of  articles  to  eat,  and  drink,  and  wear,  than  his 
neighbor  Brown,  who  works  at  another  trade.  He 
would  find  it  very  difficult  to  make  an  exact  comparison 
between  the  supplies,  of  all  sorts,  coming  in  the  course 
of  a  day,  a  week,  a  year,  into  his  own  house  and  into 
Brown's,  respectively :  but  if  he  learns  that  Brown  re- 
ceives $1.25  a  day,  while  he  receives  only  $1.20,  he  knows 
at  once  that  Brown's  occupation  is  the  more  remunera- 
tive, and  in  just  what  degree. 

But  we  must  get  rid  decisively  of  all  remnants  of  the 
notion  that  things  exchange  on  a  basis  of  equality  be- 
cause they  have  cost  equal  amounts  of  labor.  The 
proposition  already  quoted  from  Prof.  Jevons,  "Labor 
once  spent  has  no  influence  on  the  future  value  of  any 
article,"  applies  throughout  the  whole  length  and  breadth 
of  exchange.  Products  often  exchange  for  only  half 
what  they  cost ;  they  often  exchange  for  twice  what  they 
cost.  It  is  simply  a  question  of  the  demand  for  an  arti- 
cle and  the  supply  of  it.  The  cost  of  production  only 
comes  in  as  influencing  the  supply.  The  past  cost  of 
production  has  regulated  the  present  supply ;  the  pres- 
ent cost  of  production  will  regulate  the  future  supply. 

If  this  be  so  where  goods  are  exchanged  for  goods,  it 
is  not  the  less  so  where  goods  are  exchanged  for  money. 
An  ounce  of  silver  buys  a  bushel  of  wheat  not  at  all  be- 
cause each  has  cost  a  day's  labor.  The  silver  may  have 
been  dug  out  at  Laurium,  more  than  two  thousand  years 
ago,  at  the  cost  of  labor  necessary  to  produce  twelve 
bushels  of  wheat.  The  wheat  itself  may  sell  for  one- 
half  as  much  more  than  last  year,  for  no  other  reason 
than  that  two  nations  in  Europe  have  fallen  to  cutting 
throats.  It  is  simply  a  question  of  supply  and  demand. 


THEORY  OF  INCONVERTIBLE  PAPER  MONEY.  287 

Present  cost  of  production — days'  labor — only  enters  to 
affect  the  supply  hereafter. 

But  the  further  to  show  the  fallacy  of  this  notion,  let 
us  for  a  moment  suppose  that  in  barter  the  amounts  of 
labor  involved  in  the  production  of  commodities  are 
really  measured  against  each  other,  and  that  this  meas- 
urement serves  as  the  basis  of  exchange ;  that  it  is  in 
this  way  we  get  an  answer  to  Prof.  Price's  question,  how 
the  tailor  is  to  discover  how  many  loaves  he  ought  to 
get  for  his  coat ;  or  the  mason  to  learn  how  much  brick- 
work he  is  to  make  for  the  garment?  Could  we  find  any 
article  which  would  less  advantageously  answer  the  re- 
quirements of  a  common  measure  of  value  than  the 
present  money  of  the  world,  gold  and  silver?  In  the 
first  place,  we  have  the  fact  that,  owing  to  the  special 
conditions  governing  the  production  of  these  metals, 
taken  in  connection  with  the  peculiar  principle  which 
regulates  the  purchasing  power  of  money,  the  value  of 
gold  or  silver  may  be  hundreds  of  years  behind  the  cost 
of  production  or  scores  of  years  in  advance  of  it.1  In 
the  second  place,  we  may  fairly  say  that  men  in  general 
know  less  about  the  conditions,  as  to  cost  of  production, 
under  which  gold  and  silver  are  brought  to  market,  than 
they  do  about  the  corresponding  conditions  under  wh id i 
nineteen-twentieths,  if  not  ninety-nine  hundredths,  of  the 
articles  they  deal  in  are  produced.  Almost  any  man  may 
know  something  personally,  or  form,  second-hand,  some 
sort  of  an  idea,  of  the  cost  of  producing  wheat,  or  cattle, 
or  clothes,  or  chairs.  How  few  things  does  he  buy  of 
whose  respective  costs  of  production  he  knows  so  little 
as  he  does  regarding  that  of  gold  or  silver !  A  man  has 
an  almost  indefinitely  better  opportunity  to  compare  the 

1  See  pp.  246-8. 


288  MONEY. 

amount  of  labor  involved  in  the  production  of  the  com- 
modity he  has  to  sell,  with  that  involved  in  the  pro- 
duction of  spices  in  the  islands  of  the  Indian  Ocean, 
than  he  has  to  make  the  same  comparison  with  respect 
to  gold,  raised,  as  it  chiefly  is,^in  regions  not  only  remote 
but  comparatively  inaccessible,  yielding  irregularly  and 
spasmodically,  the  industry  shifting  its  seats  and  suffer- 
ing changes  of  condition,  not  only  from  generation  to 
generation,  but  from  year  to  year. 

I  apprehend  that  this  notion  of  money  serving  as  a 
common  measure  of  value  is  wholly  fanciful ;  indeed  the 
very  phrase  seems  to  indicate  a  misconception.  Yalue 
is  a  relation.  Relations  may  be  expressed,  but  not 
measured.  You  cannot  measure  the  relation  of  a  mile 
to  a  furlong  :  you  express  it  as  8 : 1. 


But  how  can  anything  perform  the  office  of  a  common 
denominator  in  exchange,  unless  it  possesses  what  Prof. 
Bowen  calls  "intrinsic  value;"  unless,  in  Chevalier's 
phrase,  it  constitutes  a  material  equivalent  or  recom- 
pense ?  With  a  view  to  answering  this  question,  let  us 
take,  not  a  debased  coinage,  containing  but  a  part  of  the 
silver  or  gold  it  purports  to  contain,  nor  a  paper  money 
consisting  of  the  notes  of  banks  which  promise  to  pay 
coin  on  demand,  and  which  hold  a  certain  amount  of 
coin  for  that  purpose,  but  a  paper  money  costing  as 
nearly  nothing  as  may  be,1  but  limited  by  restrictions, 
natural  or  legal,  to  a  definite  amount.  Let,  for  exam- 
ple, these  be  nothing  but  curiously  colored  bits  of  paper 
with  a  government  stamp  upon  them  which  it  is  felony 

1  The  principle  de  minimis  non  curatur,  holds  true  in  economics  as 
in  law. 


THEORY  OF  INCONVERTIBLE  PAPER  MONEY.  289 

to  imitate.  No  redemption  of  these  need  be  promised 
by  the  government.  Like  some  of  the  paper  money  of 
our  early  colonial  days,  they  may  simply  bear  the  inscrip- 
tion, five  dollars,  five  shillings,  or  what  not. 

Now  let  it  for  once  be  granted  that  a  demand  is  cre- 
ated for  this  paper  by  a  law  making  it  legal  tender,  at 
certain  rates,  for  debts  contracted,  or  by  the  offer  of 
the  government  to  receive  it  for  taxes,1  or  by  a  general 
conviction  that  it  "will  do"  for  a  medium  of  exchange. 

These  are  no  unreasonable  suppositions.  A  score  of 
such  moneys  are,  as  we  shall  see,  in  existence  to-day,  cir- 
culating freely  throughout  large  comnmnities.  No  mat- 
ter how  it  came  about  that  currency  was  first  given  to 
these  colored  bits  of  paper,  we  assume  them  in  circula- 
tion, men  being  willing  to  take  them  for  what  they  have 
to  sell,  knowing  that  with  them  they  can  obtain  what 
they  wish  to  buy. 

A  demand  for  these  bits  of  paper  being  once  created, 
every  barrel  of  flour,  every  cow  and  calf,  every  pair  of 
boots,  brought  into  market  will  be  offered  for  them,  the 
desire  and  effort  of  each  possessor  of  these  commodities 
being  to  get  the  most  pieces  he  can  for  his  stock,  while 
it  is  the  desire  and  effort  of  each  possessor  of  the  paper 
to  get  for  a  given  number  of  pieces  the  greatest  number 
of  bushels  of  wheat,  the  best,  if  not  the  largest,  pair  of 
boots,  the  choicest  cow  or  calf,  which  can  be  had.  Is 
it  not  evident  that  this  would  result  in  establishing  ex- 
changing-proportions  between  the  different  commodities 
in  the  market?  Every  holder  of  the  paper  money  would 
be  willing  to  give  more  pieces  for  a  cow  than  for  a  calf, 
for  a  cow  in  good  condition  than  for  a  lean  one ;  and 

1  "A  prince  may  give  a  certain  value  to  money,  by  receiving  it  in 
taxes." — [Adam  Smith.] 

25 


290  MONEY. 

thus  the  commodities  would  speedily  become  differen- 
tiated, at  first  coarsely  and  rudely ;  then  more  and  more 
nicely  and  exactly.  The  same  number  of  pieces  might 
at  first  be  given  for  a  load  of  wheat  as  for  a  milch  cow ; 
but,  in  that  case,  of  the  many  farmers  who  had  both 
cows  and  wheat,  and  knew  the  comparative  cost  and 
trouble  of  raising  them,  many  would  bring  loads  of 
wheat  and  few  would  drive  cows  to  market,  till  the  hold- 
ers of  the  paper  would  begin  to  bid  more  pieces  for 
cows  and  fewer  for  loads  of  wheat,  and  the  prices  of  the 
two  would  assume  proportions  closely  corresponding  to 
their  respective  costs  of  production. 

IDEAL  MONEY. 

I  suppose  it  was  an  apprehension  of  this  use  of  money 
as  a  common  denominator,  to  express  and  record  rela- 
tions in  exchange,1  which  lay  beneath  the  doctrine  of 
"  Ideal  Money,"  advocated  in  England  by  many  writers 
down  through  the  discussions  attending  the  Bullion  Ke- 
port  and  the  resumption  act  of  1819,  giving  rise  to  the 
famous  controversy  on  the  question,  "What  is  a  pound?  " 

The  economist  of  highest  repute  who  has  been  claim- 
ed by  the  more  recent  advocates  of  "ideal  money"  as 
the  champion  of  their  cause,  was  Sir  James  Steuart. 

"His  work,"  says  Lord  Lauderdale,  "has  been  copi- 

1  "Whether  the  terms,  crown,  livre,  pound  sterling,  etc.,  are  not 
to  be  considered  as  exponents  or  denominations?  And  whether 
gold,  silver,  and  paper  are  not  tickets  or  counters  for  reckoning,  re- 
cording or  transferring  such  denominations?  Whether,  the  denom- 
inations being  retained,  although  the  bullion  were  gone,  things  might 
not  nevertheless  be  rated,  bought  and  sold,  industry  promoted,  and 
a  circulation  of  commerce  maintained  ?  " — [Bishop  Berkeley's  Querist, 
Nos.  25  and  26,  A.D.  1710.] 


IDEAL  MONEY.  291 

ously  quoted  as  affording  authority  for  this  strange  and 
unintelligible  doctrine  of  the  advantage  of  conducting 
the  circulation  of  a  country  by  abstract  currencies,  rep- 
resenting imaginary  denominative  values."1 — [Deprecia- 
tion Proved,  p.  70.] 

"So  far,"  however,  asserts  Lord  Lauderdale,  "is  it 
from  being  true  that  Sir  James  Steuart  sanctions  the 
opinion  that  the  circulation  of  a  country  can  be  conduct- 
ed by  paper  representing  no  metallic  currency,  and  en- 
joying no  denominative  value,  that  those  who  are  really 
acquainted  with  his  writings  must  consider  such  a  rep- 
resentation as  a  gross  perversion  of  his  doctrine,  for  he 
distinctly  states  that  'some  intrinsic  value  or  other 
must  be  found  out  to  form  the  basis  of  paper  money, 
for  without  that,  it  is  impossible  to  fix  any  standard 
worth  for  denominations  contained  in  the  paper.' " — 
[Ibid.,  p.  73.] 

I  venture  to  think  that  Lord  Lauderdale  and  the  ad- 
vocates of  an  ideal  money  are  both  right  and  both  wrong 
respecting  Sir  James  Steuart's  views.  The  fact  is,  this 
able  writer  not  only  contended  for  the  theoretical  pos- 
sibility of  conducting  exchanges  by  means  of  an  ideal 
money,  or  a  money  not  embodied  in  material  form,  but 
held  that  there  were  certain  marked  advantages2  herein. 

1  "  The  idea  of  a  currency  without  a  specific  standard  was,  I  be- 
lieve, first  advanced  by  Sir  James  Steuart    .     .     .     directly  at  vari- 
ance with  the  general  principles  he  endeavors  to  establish." — [Ri- 
cardo's  Proposals,  p.  14.] 

2  "  The  advantages  found  in  putting  an  intrinsic  value  into  that 
substance  which  performs  the  functions  of  money-of-account  is  com- 
pensated by  the  instability  of  that  intrinsic  value,  and  the  advantage 
obtained  by  the  stability  of  paper  or  symbolical  money  is  compensated 
by  the  defect  it  commonly  has  of  not  being  at  all  times  susceptible 
of  realization  into  solid  property,  or  intrinsic  value."     Sir  James  in- 


292  MONEY. 

If  the  writers  who  have  stumbled  over  Sir  James 
Steuart's   seemingly    contradictory  expressions    would 
recall  the  circumstances  under  which  his  treatise  was 
written,  that  is,  prior  to  the  recoinage  of  1774,  when  the| 
current  coin  was  so  debasedm4hat  a  guinea  might  contain1 
an  amount  of  gold  10,  20,  or  even  30  per  cent,  below  the 
mint  standard,  and  hence  the  question,  What  is  a  pound  P1 
became  a  practical  and  serious  one,  they  would  find  less 
difficulty  in  understanding  his  distinction  between  mon- 
ey-of-account  and  money-coin. 

Briefly,  Sir  James  held  that  when  an  article  of  so- 
called  intrinsic  worth,  such,  e.  g.,  as  gold,  is  taken  at  once 
as  the  standard  and  the  actual  means  of  deferred  pay- 
ments, the  creditor  is  liable  to  wrong  from  one  or  both 
of  two  causes : 

First,  the  ounce  of  gold  may,  from  influences  affecting 
the  production  of  that  metal,  come  to  represent  a  much 
smaller  expenditure  of  labor  than  when  the  contract  was 
made.  The  possible  range  of  such  an  effect  is  seen  in 
tracing  the  history  of  the  production  of  the  precious 
metals. — [Chap.  4-7.] 

stances  the  habit  of  trade  among  the  savages  upon  the  African  coast 
of  Angola,  "  where  there  is  no  real  money  known.  The  inhabitants 
there  reckon  by  macoutes,  and  in  some  places  this  denomination 
is  subdivided  into  decimals,  called  pieces.  One  macoute  is  equal  to 
ten  pieces.  This  is  just  a  scale  of  equal  parts  for  estimating  the 
trucks  they  make."  Lord  Lauderdale,  in  his  "  Depreciation  Proved," 
says  that  the  macoutes  were  pieces  of  net-work  used  by  the  natives  as 
a  covering,  perhaps  against  insects.  There  are,  however,  few  writers 
who  have  not,  with  Sir  James  Steuart,  followed  the  statements  of 
travelers  that  the  macoute  is  a  mere  name  or  symbol.  It  figures  in  a 
?core  of  treatises,  from  Montesquieu  to  Mill,  as  an  illustration  of  ideal 
money. 

1  "  The  disorder  of  the  English  coia  has  rendered  the  standard  of 
a, pound  sterling  quite  uncertain.  To  say  that  it  is  1718.7  grains  of 
fine  silver,  is  quite  ideal" — [Pol.  Economy,  Look  IIF,  part  ii,  ch.  8.] 


IDEAL  MONEY.  293 

Second,  irrespective  of  and  additional  to  this,  the  coin 
in  which  the  creditor  shall  be  paid  may  actually  embody 
a  smaller  amount  of  the  metal  than  was  in  contempla- 
tion at  the  time  the  contract  was  made,  owing  to  contin- 
ued abrasion  in  use,  or  to  further  debasement  at  the 
mint.  Not  only  may  the  average  value  of  the  coin  be 
thus  reduced ;  but  the  corruption  and  debasement  of  the 
coin  may  proceed  very  irregularly.  Here  are  two  sover- 
eigns and  two  shillings,  one  of  each  kind  of  coin  badly 
worn ;  one  fresh.  The  heavy  shilling  which  is  nominally 
-~ro  part  of  a  sovereign,  may  be  tV  part  of  the  light  sov- 
ereign. The  light  shilling  may  be  only  -^  part  of  the 
heavy  sovereign.  In  such  a  coinage,  what  is  a  sover- 
eign? what  is  a  shilling?  and  what  is  the  relation  of  a 
shilling  to  a  sovereign?  The  actual  range  historically  of 
such  an  effect  may  be  seen  by  reference  to  Chap.  II. 

Now  Sir  James  Steuart's  position  on  both  these  points 
is  incontrovertible.  All  coined  money  is  subject  to  vari- 
ations, it  may  be  important  variations,  on  these  several 
accounts.1 

Moved  by  these  considerations  Sir  James,  in  his  "Po- 
litical Economy,"  advocated  the  adoption  of  a  money  of 
account  which  should  be  distinct  from  the  actual  coin 
of  the  country. 

"The  value  of  commodities  depending  upon  a  general 
combination  of  circumstances  relative  to  themselves  and 
to  the  fancies  of  men,  their  value  ought  to  be  consid- 
ered as  changing,  only  with  respect  to  one  another ;  con- 
sequently, anything  which  troubles  or  perplexes  the  as- 

1  It  is,  of  course,  conceivable  that  the  two  effects  should  in  a  de- 
gree neutralize  each  other.  The  changes  in  gold  production  tending 
to  make  the  coin  more  valuable,  might  coincide  with  abrasion,  etc., 
tending  to  make  the  coin  less  valuable. 


294  MONEY. 

certaining  those  changes  of  proportion  by  the  means  of 
a  general,  determinate  and  invariable  scale,  must  be  hurt- 
ful to  trade  and  a  clog  upon  alienation."  .  .  . 

"Money,  which  I  call  of  account,  is  no  more  than  an 
arbitrary  scale  of  equal  parts,  invented  for  measuring  the 
respective  values  of  things  vendible.  Money-of-account, 
therefore,  is  quite  a  different  thing  from  Money-coin. 
.  .  .  Money,  strictly  and  philosophically  speaking,  is 
an  ideal  scale  of  equal  parts."  .  .  . 

Just  what  the  writer  means  by  a  money-of-account 
will  best  be  seen  by  Dr.  Hunter's  description  of  the 
monetary  system  which  Sir  James,  as  the  adviser  of  the 
East  India  Company,  caused  to  be  introduced  into  India 
in  consequence  of  the  general  corruption  of  the  coin. 

"  The  actual  coin  at  any  single  mint  could  not  be  select- 
ed as  the  standard,  for  no  mint  could  be  trusted,  and 
ivhatever  could  be  handled  was  sure  to  be  falsified.  An  ide- 
al coin  IDOLS  accordingly  invented,  by  which  all  rupees 
might  be  valued,  and  one  of  the  Company's  earliest  and 
soundest  financial  advisers  has  left  on  record  the  process : 

" '  When  a  sum  of  rupees  is  brought  to  a  shroff  (banker 
or  money-changer),  he  examines  them  piece  by  piece, 
ranges  them  according  to  their  fineness,  then  by  their 
weight.  Then  he  allows  for  the  different  legal  battas 
(deductions)  upon  siccas  and  sunats;  and,  this  done,  he 
values  in  gross  by  the  current  rupee  what  the  whole  quan- 
tity is  worth.  The  rupee  current,  therefore,  is  the  only 
coin  fixed  by  which  coin  is  at  present  valued :  and  the 
reason  is,  because  it  is  not  a  coin  itself,  and  therefore  can 
never  ~be  falsified  or  worn.'  "  l — [Eural  Bengal,  p.  300.] 

1  The  quotation  is  from  Sir  James  Steuart's  work  on  the  Coin  of 
Bengal,  addressed  to  the  East  India  Company.  Among  the  regula- 
tions proposed  by  Sir  James  is  the  following : 


IDEAL  MONEY.  295 

Now  by  such  a  system  as  Sir  James  Steuart  caused 
to  be  introduced  into  India,  the  scheme  of  a  "determi- 
nate and  invariable  scale"  for  the  expression  of  value  is 
realized.  Under  such  a  system  in  England,  the  shilling 
would  always  be  the  twentieth  part  of  a  pound  and  be 
twelve  times  the  penny.  It  will  be  observed,  however, 
that  this  does  not  obviate  the  use  of  the  metals  :  of  a  ma- 
terial medium  of  exchange.  It  merely  makes  the  coin 
merchandise,  bought  and  sold  according  to  this  "scale." 
Of  course,  this  impedes  the  freedom  and  the  fullness  of 
circulation,  and  thus  we  may  say  that  Sir  James's 
scheme  assists  money  to  perform  its  function  as  a  .de- 
nominator of  values,  at  the  expense  of  its  efficiency  as 
a  medium  of  exchange.  Whether  this  would  be  desir- 
able or  not  in  any  given  situation,  would  depend  upon 
the  general  condition  of  the  circulating  coin.  With  a 
coinage  in  such  a  condition  as  Macaulay  describes,  writ- 
ing of  England  in  1696,1  and  as  Dr.  Hunter  describes  as 
existing  in  India 2  down  to  a  more  recent  date,  commerce 
would  doubtless  be  facilitated  by  the  authoritative  an- 
nouncement of  a  standard  by  which  coins,  in  all  con- 
siderable transactions,  should  be  bought  and  sold  by 
test  and  weight.  If  this  retarded  their  circulation,  it 
would  make  at  least  a  tardy  justice  possible  between 
man  and  man. 


"  The  Company,  therefore,  having  resolved  to  put  an  end  to  all 
confusion  in  future,  do  for  this  purpose  determine  that  the  rupee 
current  shall  be  the  standard  money  of  Bengal ;  and  that,  in  order  to 
preserve  it  merely  as  a  standard,  consisting  of  a  determinate  quantity 
of  fine  silver,  they  hereby  forbid  the  making  of  any  current  coin  of  the 
exact  value,  or  which  shall  ever  carry  the  denomination  of  a  rupee 
current,  to  the  end  that  this  denomination  of  money  may  at  no  time 
be  subject  to  the  inaccuracy  of  coinage  or  of  wearing  in  circulation." 

1  See  pp.  209-11. 

3  See  pp.  211-2. 


296  MONEY. 

"We  have  said  that  a  money  of  account  for  registering 
values,  as  determined  by  the  state  of  the  market,  and 
for  measuring  the  obligations  of  debtors,  does  not  nec- 
essarily dispense  with  the  "material  equivalent  or  rec- 
ompense," as  a  medium  of  exchange.  "Although  mon- 
eys of  account,"  says  Kelly's  Cambist,  "be  not  repre- 
sented by  real  coins,1  yet  their  intrinsic  value  may  be 
determined  by  their  known  relations  or  proportions  to 
certain  coins."  A  money  of  account  of  such  a  character 
is,  therefore,  not 'properly  an  ideal  money  merely  be- 
cause it  refers  to  a  non-existent  coin. 


During  the  discussions  in  Great  Britain  attending  the 
Bullion  Keport  and  the  Act  of  1819,  the  kingdom  being 
then  in  a  state  of  suspension,  plans  for  an  Ideal  Money 
altogether  irrespective  of  metal  were  urged  with  not  a 
little  persistency.  A  few  quotations  from  the  pam- 
phlets of  Messrs.  Gloucester  Wilson  and  Perceval  Eli- 
ot will  serve  sufficiently  to  give  an  idea  of  the  nature 
and  extent  of  their  claim  for  a  money  without  material 
embodiment : 

"Mediums  of  currency  are  all  properly,  in  so  far  as 
they  have  any  real  import,  personifications  of  abstract 
value. 

"What  is  called  the  equivalency  of  some  of  them, 

1  "  What  is  the  reason  why  no  nations  that  I  know  keep  their  ac- 
counts by  any  specific  coin?  Neither  the  pound  sterling,  nor  the 
livre,  nor  the  German  florin,  nor  the  Flemish  schilling,  nor  the  Span- 
ish piastre,  ducat,  or  maravedi,  nor  the  Portugal  re,  nor,  in  short, 
the  rupee  current  in  Bengal,  are  real  and  specific  coins." — [Steuart, 
Coin  of  Bengal,  p.  12.] 

Since  this  was  written,  the  pound  sterling  has  been  coined  under 
the  name  of  the  sovereign. 


IDEAL  MONET.  297 

whether  imaginary  or  even  truly  real,  is,  as  far  as  it  in- 
terferes with  their  abstract  character  as  measures,  a 
mere  remaining  leaven  of  savage  barter. 

"Their  greater  or  less  grossness  of  personification 
shows  the  skill  to  which  we  have  arrived  in  laying  our 
vessel  near  the  wind." — [Gloucester  "Wilson,  Defense  of 
Abstract  Currencies,  p.  93.] 

It  appears  to  be  Mr.  Wilson's  idea  that  currency,  like 
saints,  can  only  be  perfected  when  completely  rid  of  the 
flesh. 

"  Gold  is,  as  it  were,  the  vernacular  tongue  of  curren- 
cy ;  we  speak  it  perhaps  more  glibly  than  we  do  any 
other ;  but  it  by  no  means  follows,  nor  is  it  indeed  true, 
that  we  construe  it  so  grammatically  as  we  do  the  ac- 
quired language  of  paper." — [Ibid.] 

"  The  gold  is  no  more  essential  to  the  guinea  than  the 
brass  or  ivory  of  the  ruler  is  to  its  indues. " — [P.  44.] 
"Paper,  as  the  mere  abstract  expression  of  value,  is 
more  likely  to  be  uniform  in  value  than  gold." — [P.  48.] 
"  The  abstract  idea  of  a  pound  will  be  far  more  uniform 
in  value  than  any  fixed  quantity  of  gold  or  silver." — [P. 
49.] 

"  I  am  told  by  the  realists  that  an  inch  is  a  sensible 
object,  because  it  can  be  shown  me  on  brass  and  ivory 
rulers.  .  .  .  Even  this  slight  personification  exposes 
our  degrees  to  error :  Nature  mocks  all  such  endeavors 
to  bind  her  sensible  objects  in  strict  subjection  to  the 
mind's  abstractions.  We  may  change  brass  and  ivory 
for  platina :  still  she  contracts  and  dilates  the  best  ma- 
terial we  can  select,  at  her  caprice  or  pleasure,  and  sends 
us  back  for  any  fixed"  criterion  to  what  we  are  thus  idly 
deserting,  our  own  pure  abstract  idea  of  inches. 
Measures  are  all  in  their  nature  purely  abstract." — [Pp. 
116-7.] 

25* 


298  MONEY. 

Mr.  Perceval  Eliot  adopts  the  following  line  of  argu- 
ment :  "Whatever  in  itself  possesses  an  embodied  form 
and  an  intrinsic  value,  must,  as  a  material  commodity, 
be  subject  to  variation,  under  the  universal  principle 
of  the  relative  proportions  ef  product  and  demand. 
And,  paradoxical  as  it  may  seem  in  theory,  it  is  never- 
theless most  incontrovertibly  true  in  practice,  that  it  is 
the  very  attribute  of  intrinsicality  which  necessarily  im- 
poses the  quality  of  variation.  It  is  the  ideal  money 
only  which  admits  of  invariable  value,  because  it  is  not 
formed  of  substantial  and  therefore  variable  materials."1 
— [Observations  on  the  Fallacy  of  the  Supposed  Depre- 
ciation of  Paper.] 

It  is  scarcely  worth  while  to  separate  the  parts  of 
truth  and  error  in  these  paragraphs. 

We  have  seen  that  a  paper  money,  expressing  simply 
the  will  of  the  sovereign,  or  accepted,  irrespective  of  any 
intrinsic  worth,  by  the-  general  consent  of  the  people, 
may  serve  as  a  medium  of  exchange,  and,  if  confined 
within  the  limits  of  money  of  gold  or  silver,  may  re- 
main without  necessary  depreciation. 

We  have  seen,  moreover,  that,  though  destitute  of 
value,  in  the  sense  of  the  economists,  such  money  will 
serve  to  express  and  record  the  relative  values,  the  com- 
parative purchasing  power,  of  commodities. 

And  the  writers  quoted  are  undoubtedly  right  in  urg- 
ing that  the  affixing  of  such  a  scale  to  any  material  com- 
modity, like  gold,  must  result  in  something  less  than 
perfect  justice  in  deferred  payments,  through  the  depre- 
ciation or  appreciation  of  the  metal  due  to  changes  oc- 
curring meantime  in  the  cost  of  production,  if  not  also 

1  "  It  is  submitted,"  says  Lord  Lauderdale,  "  to  the  refined  ingenuity 
of  this  gentleman's  mind,  that  an  immaterial  army  would  also  have 
the  advantage  of  being  invulnerable." 


INCONVERTIBLE  PAPER  MONEY.  299 

to  the  deterioration  or  debasement  of  the  specific  por- 
tion, or  portions,  of  that  commodity  which  the  debtor  is 
to  pay  and  the  creditor  to  receive.  That  the  wrong  done 
to  one  or  the  other  party  to  long  contracts  may  be  not 
slight,  but  serious,  and  at  times  even  ruinous,  will  be  ad- 
mitted by  all  who  are  familiar  with  the  history  of  money 
and  of  the  production  of  the  precious  metals. 


If,  then,  a  money,  consisting  of  colored  bits  of  paper, 
of  a  cost  so  small  as  to  be  inappreciable,  may  serve  as  a 
medium  of  exchange,  and  may  register  the  comparative 
purchasing  power  of  commodities,  and  thus  perform  the 
function  ordinarily  spoken  of  as  measuring  values,  and 
may  even  act  as  a  standard  for  deferred  payments,  to  fix 
the  obligations  of  debtors — why  should  not  such  money 
be  adopted  by  all  civilized  communities,  and  the  vast 
amount  of  wealth  and  labor  now  expended  in  raising 
gold  and  silver  from  the  mines  be  applied  to  occupations 
more  immediately  productive  of  health,  comfort  and  hap 
piness  to  mankind?  This  question  may  perhaps  be> 
more  intelligently  answered  after  a  rapid  glance  at  the 
history  of  Inconvertible  Paper  Money.  But,  first,  let  us 
note  one  characteristic  of  this  money,  a  knowledge  of 
which  is  necessary  to  an  understanding  of  its  history. 

It  has  been  said  that,  while  Inconvertible  Paper  Money 
has,  in  certain  instances,  resulted  from  the  degeneration 
of  paper  money  originally  convertible,  yet,  that,  foi 
the  present,  we  would  confine  ourselves  to  the  consider- 
ation of  those  alone  which  have  been  put  forth  by  gov- 
ernment, as  an  act  of  authority,  the  circulation  of  the 
paper  being  primarily  due  to,  or  at  least  largely  depend- 
ent on,  the  force  of  law. 

It  follows,  pretty  much  as  of  course  from  the  state- 


300  MONEY. 

ment  made,  that  such  paper  has  no  circulation  beyond 
the  territory  over  which  the  authority  of  the  issuing  gov- 
ernment extends.  Limited  circulation,  non-exportabili- 
ty — then,  may  be  regarded  as  of  the  essence  of  this 
money.  Indeed,  this  has  beeny  by  not  a  few,  regarded 
as  one  of  its  crowning  excellencies.  John  Law  claimed 
for  his  paper  money,  that  no  nation  could  draw  it  away 
from  France. 

"Let  it  be  remembered,"  said  the  Continental  Con- 
gress in  their  address  to  the  people  September  13,  1779, 
"that  paper  money  is  the  only  kind  of  money  which 
cannot  'make  wings  unto  itself  and  fly  away.'  It  re- 
mains with  us ;  it  is  ever  ready  and  at  hand  for  the  pur- 
poses of  commerce  or  taxes,  and  every  industrious  man 
can  find  it." 

Mr.  Duncan  says  of  the  political  economy  of  his 
school :  "  It  affirms  that  every  independent  state  is  en- 
titled to  issue  legal  tender  for  its  own  internal  purposes, 
in  discharge  of  private  debts  and  public  taxes,  within  its 
own  realm ;  such  legal  tender  not  possessing  intrinsic 
value,  but  only  a  conventional  value  derived  from  the 
authority  of  the  state  which  calls  it  into  existence. 

"  Thus  secure  of  being  always  kept  within  the  realm 
of  the  state  which  created  it,  this  legal  tender  would  be 
the  special  monetary  instrument  by  which  all  fiscal  obli- 
gations and  mercantile  liabilities  would  be  discharged 
at  home." — [On  Currency,  p.  28.] 

Mr.  Wells  in  his  tract,  "Kobinson  Crusoe's  Money," 
makes  the  following  citations  to  the  same  effect : 

"  Beyond  the  sea,  in  foreign  lands,  it  [the  greenback] 
is  fortunately  not  money ;  but  when  have  we  had  such 
a  long  and  unbroken  career  of  prosperity  in  business  as 
since  we  adopted  this  non-exportable  currency?" — 
[Hon.  W.  D.  Kelley,  Ho.  Keps.,  1870.] 


INCONVERTIBLE  PAPER  MONEY.  301 

"Does  or  does  not  our  duty  to  ourselves  and  the 
world  at  large  demand  that  we  maintain  permanently  a 
non-exportable  currency?  .  .  .  The  affirmative  of 
this  question  is  also  in  perfect  harmony  with  the  prac- 
tice and  experience  of  leading  nations  and  in  harmony 
with  the  teachings  of  sound  economic  science." — [H.  C. 
Carey— letter  to  Hon.  M.  W.  Field,  Sept.,  1875.] 

This  fact  of  non-exportability  brings  us  face  to  face 
with  the  vital  characteristic  of  an  inconvertible  currency, 
viz.,  that  its  amount  is  not  subject  to  regulation  by  the 
law  which,  as  we  have  seen,  distributes  the  metallic 
money  of  the  world,  among  the  several  nations  and 
communities,  according  to  the  requirements  of  their 
trade. 

We  have  seen  that  if  the  amount  of  the  precious  met- 
als in  any  country  becomes  excessive,  that  is,  reaches  a 
height  which,  with  the  number  of  exchanges  now  requir- 
ing to  be  effected  by  the  use  of  money,  will  not  allow  the 
commodities  of  that  country  to  be  exchanged  at  prices 
on  a  level  (making  due  allowance  for  all  the  charges  of 
transportation)  with  those  of  other  countries,  a  move- 
ment at  once  begins  for  the  importation  of  commodities 
and  the  exportation  of  gold  or  silver,  which  tends  to  re- 
store the  equilibrium. 

With  the  money  we  are  now  contemplating,  however, 
no  such  security  against  redundancy  and  consequent 
depreciation  exists.  "If,"  say  the  authors  of  the  Bull- 
ion Report,  "  the  issue  is  of  inconvertible  paper,  prices 
will  rise.  The  progress  may  be  as  indefinite  as  the 
range  of  speculation  and  adventure  in  a  great  commer- 
cial country." 
26 


CHAPTEK  XV. 

ILLUSTRATIONS  OF  INCONVERTIBLE  PAPER  MONEY. 

WE  have  perhaps  gone  far  enough  in  the  theory  of 
the  subject,  to  make  it  profitable  to  take  up  the  his- 
tory of  Inconvertible  Paper  Money,  after  which  we  shall 
return  to  consider  more  attentively  the  relations  of  this 
form  of  money  to  the  industrial  welfare  of  the  commu- 
nity. 

In  looking  about  for  illustrations  of  the  natural  course 
of  Inconvertible  Paper  Money,  we  are  offered  an  unfort- 
unately large  number  of  instances  to  pick  from.  M. 
Wolowski  notes  that l  Poland  alone  of  European  nations 
preserved  itself  from  this  evil  down  to  the  time  of  its 
final  subjugation ;  while  centuries 2  before  France,  Spain 

1  Les  Finances  de  la  Kussia,  p.  148.     Prince  Adam  Wiszniewski, 
in  his  "  Histoire  de  la  Banque  de  Saint  Georges  de  Genes/'  says :  "  Si 
la  Pologne  avait  eu,  en  1792,  une  banque  bien  constitute,  elle  cut 
mis  sur  pied  cent  mille  hommes,  qui  auraient  sauve  son  independ- 
ance,"etc.,  etc. — [P.  xxix.]     This  is,  however,  rather  a  cry  of  grief 
from  a  patriotic  Pole,  than  a  sober  statement  of  the  financial  and 
military  possibilities  of  the  situation  in  1792. 

2  Col.  Yule  says :  "  The  issue  of  paper  money  in  China  is  at  least 
as  old  as  the  beginning  of  the  9th  Century.     In  1160,  the  system 
had  gone  to  such  excess  that  government  paper,  equivalent  in  nom- 
inal value  to  43,000,000  ounces  of  silver,  had  been  issued  in  six 
years;  and  there  were  local  notes  besides,  so  that  the  empire  was 
flooded  with  rapidly  depreciating  paper." — [The  Book  of  Ser  Marco 
Polo,  i,  381n.] 


PAPER  MONEY  OF  CHINA.  303 

or  Sweden  had  tasted  the  sweets  of  paper  money,  Mar- 
co Polo,  in  visiting  China,  found  in  circulation  a  money 
made  of  the  inner  bark  of  the  mulberry  tree,  the  pieces 
having  value  according  to  their  size.  These  notes  were 
issued  "with  as  much  solemnity  and  authority  as  if  they 
were  of  pure  gold  or  silver."1  The  Persians  had  paper 
money  in  1294.  The  notes  were  direct  imitations  of  the 
Chinese.  Even  the  Chinese  characters  appeared  as 
part  of  the  device.  The  Chinese  name  cliao  was  applied 
to  them.  "Expensive  preparations  were  made  for  this 
object ;  offices  called  Chao-Khanahs  were  erected  in  the 
principal  cities  of  the  provinces,  and  a  numerous  staff 
appointed  to  carry  out  the  details."2  After  two  or  three 
days  of  enforced  circulation  the  markets  were  closed, 
the  people  rose,  the  officials  were  murdered,  and  the 
project  was  abandoned.  Col.  Yule  informs  us  that  the 

1  "  And  the  Kaan  causes  every  year  to  be  made  such  a  vast  quantity 
of  this  money,  which  costs  him  nothing,  that  it  must  equal  all  the 
treasure  in  the  world.     With  these  pieces  of  paper,  made  as  I  have 
described,  he  causes  all  payments  on  his  own  account  to  be  made ; 
and  he  makes  them  to  pass  current  universally  over  all  his  kingdoms, 
provinces  and  territories,  and  whithersoever  his  power  and  sover- 
eignty extends.      And  nobody,  however  important  he  may  think 
himself,  dares  to  refuse  them  on  pain  of  death.     And,  indeed,  every- 
body takes  thenj  readily,  for  wheresoever  a  person  may  go  through- 
out the  Great  Kaan's  dominions,  he  shall  find  these  pieces  of  paper 
current,  and  shall  be  able  to  transact  all  sales  and  purchases  of  goods 
by  means  of  them  just  as  well  as  if  they  were  coins  of  pure  gold." — 
[Chap,  xxiv.] 

Col.  Yule  attributes  the  downfall  of  the  system  to  the  refusal  of 
the  Ming  dynasty  to  receive  the  paper  in  payment  at  the  treasury, 
requiring  coin  from  the  people,  while  paying  out  paper  in  disburse- 
ments on  government  account.  In  1448,  the  chao  of  1000  cash  was- 
worth  but  3.  After  1455,  there  is  no  mention  of  it  in  Chinese  history. 

2  Col.  Yule's  Notes  to  Marco  Polo,  ch.  xxiv. 


304  MONEY. 

Japanese,  also,  had  a  paper  currency  in  the  fourteenth 
century ;  but  he  offers  no  details  respecting  it. 


In  illustration  of  the  tendencies  of  Inconvertible  Pa- 
per Money,  we  select,  as  most  instructive,  as  well  as  his- 
torically most  important,  the  paper  money  of  our  own 
colonial  period  and  of  the  Revolutionary  War,  the  as- 
signats  of  France,  the  notes  of  the  Bank  of  England 
during  the  period  of  the  so-called  Restriction,  1797— 
1819.  The  episode  in  French  history  associated  with 
the  name  of  John  Law,  1717-21,  is  dwelt  upon  by  most 
writers  on  money;  but  I  am  disposed  to  think  there  is 
sufficient  show  of  truth  in  Mr.  Duncan's  plea1  that  the 
miseries  of  1720-1  were  the  result  of  downright  swin- 
dling on  the  part  of  the  Eegent  Orleans  and  his  rascally 
associates,  in  which  Law  became,  by  more  or  less  of 
compulsion,  the  tool,  to  make  it  inexpedient  to  select 
this  out  of  the  many  instances  offered  to  illustrate  the 
natural  course  of  Inconvertible  Paper  Money.  We 
shall  do  better  to  take  instances  where  issues  were 
made  in  undoubted  good  faith,  and  where,  consequently, 
the  results  may  with  more  confidence  be  traced  to  in- 
herent tendencies. 

The  colonial  period  of  American  history  offers  exam- 
ples of  inconvertible  paper  issues  in  great  variety.  We 
find  here  the  three  usual  forms  of  paper:  that  issued 
on  landed  security;2  that  based  on  taxes;  and  that  rep- 
resenting the  pure  credit  or  authority  of  the  government. 


1  On  Currency,  pp.  72-3. 

3  The  reader  will  please  bear  in  mind  the  definition  given  [p.  276] 
of  Inconvertible  Paper  Money.  It  is  paper  money  not,  in  fact,  sub- 
ject to  conversion  into  metallic  money  on  the  demand  of  the  holder. 


AMERICAN  PAPER  MONEY.  305 

We  have  paper  issued  to  meet  the  current  annual  exi- 
gencies of  the  treasury,  corresponding  to  the  Exchequer 
Bills  of  England ;  paper  issued  for  war  expenses  ;  paper 
issued,  of  choice,  for  the  professed  purpose  of  affording 
a  circulating  medium  ;  and  paper  issued  as  a  loan  for 
the  promotion  of  industry.  No  field  could  be  richer  in 
all  known  varieties. 

THE  PAPEB  MONEY  OF  THE  COLONIAL  PEKIOD. 

In  the  early  days  of  settlement  great  complaints  arose 
of  the  scarcity  of  the  circulating  medium.  Sir  Walter 
Scott's  comparison  of  Great  Britain  to  the  image  in 
Belshazzar's  dream :  the  money  of  London,  the  head, 
being  of  fine  gold ;  the  circulation  of  the  fertile  prov- 
inces of  England,  like  the  breasts  and  arms  of  the  image, 
of  silver ;  that  of  the  southern  parts  of  Scotland,  of 
brass  and  copper ;  while  the  Highlands  and  the  remoter 
parts  must  needs  be  content  with  iron  and  clay,  would 
require  a  new  term  to  be  introduced  to  express  the  con- 
dition of  the  colonies  on  the  shores  of  North  America. 

Hence  we  find  the  colonists  in  the  South  resorting,  as 
has  been  stated,  to  tobacco  and  rice  as  a  medium  of  ex- 
change, while  those  of  New  England  made  use  of  corn 
and  cattle  in  large  transactions,  and,  in  smaller  ex- 
changes, of  "wampum"  made  of  black  and  white  beads, 
or  parts  of  shells,  the  black  (inclining  to  blue,  and  often 
so  denominated)  of  the  quohoag,  the  white  of  the  peri- 
winkle.1 Bullets  were  for  a  time  resorted  to  as  small 
change  below  a  shilling. 

Notwithstanding  the  scarcity  of  general  capital,  and 
the  especial  scarcity  of  metallic  money,  owing  to  the  slow 

1  "  The  stem  or  stock  of  the  periwinkle,  when  all  the  shell  is  broken 
off,"  explains  Roger  Williams. 


306  MONEY. 

growth  of  foreign  trade  among  a  people  haying  every- 
thing to  create  for  themselves,  some  silver  came  into 
the  colonies,  as  the  result  of  exchanges  with  the  West 
Indies,  and  small  amounts  were  brought  over  by  immi- 
grants from  Europe.  This  money  the  colonists  sought 
to  detain  by  declaring  it  of  legal  value  superior  to  its 
mint  value  at  the  place  of  coinage.  Thus  the  money  of 
the  provinces  came  to  be  of  less  value  than  sterling.1 

By  these  acts  the  colonists  deliberately  cut  themselves 
off  from  the  monetary  circulation  of  the  world.2  "The 
impossibility  of  maintaining  a  metallic  currency,  in  a 
state  of  colonial  dependence,"  says  Mr.  Bancroft,  "was 
assumed  as  undeniable." — [Hist.  U.  S.,  iii,  387.] 

Was  this  action  necessary?  If  there  was  room  for 
choice,  was  it  wise  ? 

"The  attempt  of  our  forefathers,"  says  Dr.  Bronson, 

1  "  The  pound  has  four  different  values  in  the  United  States,"  says 
Prof.  Tucker.  "  In  New  England, Virginia,  Kentucky,  Tennessee,  Ohio, 
Indiana  and  Mississippi  the  pound  is     $3£,  and  the  dollar,  6s. 

In  New  York  and  North  Carolina,       2£,     "     "         "      8s. 

In  Pennsylvania,  N.  Jersey  and  Del.,  2f-,     "     "         "      7s.  6d 

In  South  Carolina  and  Georgia,  4f,     "     "         "      4s.  8d." 

I  think  Prof.  Tucker  is  in  error  as  to  the  value  of  the  shilling  in 
Ohio. 

In  his  "  Notes  on  Virginia,"  Jefferson  writes :  "  How  it  has  hap- 
pened that,  in  this  as  well  as  the  other  American  States,  the  nominal 
value  of  coin  was  made  to  differ  from  what  it  was  in  the  country  we 
had  left,  and  to  differ  among  ourselves,  too,  I  am  not  able  to  say 
with  certainty." — [Query  xxi.] 

2  In  the  report  of  a  Committee  of  the  R.  I.  Assembly,  in  1749,  the 
following  proposition  is  enunciated  as  the  basis  of  the  colony's  ac- 
tion respecting  money: 

"  This  will  always  be  the  case  with  infant  countries  that  do  not 
raise  so  much  as  they  consume ;  either  to  have  no  money,  or  if  they 
have  it,  it  must  be  worse  than  that  of  their  richer  neighbors,  to  com- 
pel it  to  stay  with  them." 


AMERICAN  PAPER  MONEY.  307 

"to  get  along  without  the  currency  of  the  old  world  was 
unwise  and  unprofitable.  The  unwieldy  and  inconven- 
ient substitutes  they  adopted  were  practically  expensive, 
costing  more,  there  is  reason  to  believe,  than  good  hard 
money.  By  fixing  the  prices  of  the  selected  commodities 
very  much  above  the  specie  rates,  they  made  them,  as  far 
as  could  be  done  by  legislation,  the  exclusive  currency, 
threw  out  of  use  the  coin  in  the  country,  destroyed  the 
market  for  it  among  themselves,  and  drove  it  to  other 
lands.  .  .  .  They  were  poor  indeed;  their  surplus 
earnings  were  small,  but  they  had  a  surplus  nevertheless ; 
hence  their  need  of'  money.  They  had  all  along  a  trade 
(quite  limited  for  the  first  few  years)  with  England,  Man- 
hadoes  (New  York)  and  the  West  Indies.  At  first  they 
shipped  peltry,  fish  and  lumber ;  and  afterwards,  pipe 
staves,  hoops,  beef,  pork,  peas,  fat  cattle,  horses,  etc.,  and 
brought  back  manufactured  goods,  sugar,  molasses,  cot- 
ton, wool,  bills  of  exchange,  silver  and  rum.  They  would 
have  brought  more  silver  and  less  rum  and  other  mer- 
chandise, had  the  first  been  in  greater  request  at  home. 
.  .  .  Had  the  colonists  withheld  opposing  legislation 
and  rejected  substitutes,  commerce  would  have  supplied 
them  with  all  the  coin  they  needed  (which  was  but  little), 
in  spite  of  themselves." — [Connecticut  Currency,  p.  9.] 

In  the  same  view,  Prof.  Sumner  remarks :  "  No  sound 
economist  can  hesitate  how  to  decide  this  question.  The 
losses  occasioned  by  a  bad  currency  far  exceed  the  gains 
from  imported  commodities.  The  history  of  the  United 
States  from  the  landing  of  Winthrop  to  to-day,  is  a  reit- 
erated proof  of  it." — [History,  American  Currency,  p.  6.] 

Notwithstanding  the  complaints  of  the  scarcity  of 
money  and  the  shifts  to  which  the  settlers  were  reduced 
for  a  medium  of  exchange,  the  first  issues  of  paper  mon- 
ey were  those  of  Massachusetts,  which  grew  out  of  the 


308  MONEY. 

disastrous  expedition  against  the  French  in  Canada,  in 
1690.  The  bills  of  Massachusetts  were  issued  in  pay- 
ment to  the  soldiers  of  the  expedition,  and  were  at  first 
at  a  considerable  discount,  "at  least  one-third,"  says  Mr. 
Felt.1  The  colony  sought^Jiowever,  to  hedge  around 
their  credit  by  calling  in  a  portion  of  the  issues,  promis- 
ing early  redemption  of  the  remainder,  and  making  the 
bills  receivable  for  taxes  at  the  treasury,  at  a  premium 
of  five  per  cent.  These  measures  proved  sufficient,  and 
the  paper  remained  at  par  for  nearly  twenty  years. 

The  ice  having  been  broken  under  the  stress  of  war, 
paper  money  continued  to  be  issued,  from  time  to  time 
in  anticipation  of  annual  taxes ;  but  the  amounts  so 
issued  were  not  excessive.  A  second  expedition  against 
Canada  was  contemplated  in  1709,  and  in  preparation 
for  it,  extensive  issues  were  made.  £30,000  new  and 
£10,000  old  bills  were  put  out  in  1709.  In  1711,  the  ex- 
pedition, equally  disastrous  with  that  of  1690,  took  place, 
and  £10,000  more  paper  was  issued. 

New  Hampshire,  Rhode  Island,  Connecticut,  New 
York  and  New  Jersey,  joined  in  the  expedition  and  fol- 
lowed the  example  of  Massachusetts  in  emitting  "bills 
of  credit."  "I believe,"  says  Dr.  Bronson,  "the  paper 
money  of  Massachusetts  emitted  before  Connecticut  had 
bills  of  her  own,  did  not  circulate  in  the  latter  colony.  "- 
[Conn.  Curr.,  p.  29.] 

Connecticut  copied  the  provision  of  Massachusetts 
making  the  bills  receivable  at  the  treasury  at  a  pre- 
mium of  five  per  cent.  Neither  this  paper  nor  that  of 
the  other  colonies  was  made  legal  tender  in  private  pay- 
ments; but  in  1718,  to  encourage  the  currency  of  the 
bills,  it  was  enacted  by  Connecticut  that  a  debtor  who 

1  Massachusetts  Currency,  pp.  50-1. 


COLONIAL  PAPER  MONEY.  309 

should  tender  payment  in  the  bills  of  the  colony  should 
not  be  liable  to  have  execution  levied  on  his  estate  or 
person,  or  be  imprisoned  upon  any  recovery  of  judg- 
ments granted  against  him.  It  was  the  same  subterfuge 
to  which  the  Parliament  resorted  during  the  Restriction 
period.  To  save  the  honor  of  the  British  name,  the 
Bank  of  England  notes  were  not  made  a  legal  tender; 
but  all  remedy  was  taken  away  from  the  creditor,  if  the 
notes  were  tendered. 

The  Connecticut  money,  through  being  issued  only  for 
the  expenses  of  government,  and  not  upon  loan,  and  be- 
ing provided  for,  in  a  degree,  by  special  taxes,  appears 
to  have  maintained  a  comparatively  good  reputation. 
Thus,  the  author  of  the  tract  entitled  "  Currencies  of  the 
British  Plantations  in  America,"  written  in  the  interest 
of  the  British  merchants  who  suffered  by  the  depreciation 
of  the  colonial  paper,  states  that  Connecticut  "  emitted 
bills  only  for  the  present  necessary  charges  of  govern- 
ment, upon  funds  of  taxes,  until,  1733,  having  granted  a 
charter  for  trade  and  commerce  to  a  society  in  New 
London,  this  society  manufactured  some  bills  of  their 
own;  but  this  currency  being  soon  at  a  stand-still,  the 
government  was  obliged,  in  justice  to  the  possessors,  to 
emit  X50,000  upon  loan,  to  enable  those  concerned  in 
the  society  to  pay  off  the  society's  bills  in  colony  bills." 

Rhode  Island,  on  the  contrary,  receives  severe  treat- 
ment at  the  hands  of  this  writer.  "  A  handful  of  people," 
he  says,  "admitting  of  no  instructions  from  the  king, 
Council,  or  Board  of  Trade  and  Plantations,  have  lately 
made  a  very  profitable  branch  of  trade  and  commerce  by 
negotiating  their  own  paper  money  in  various  shapes." 
And  the  author  notes  the  "promiscuous  currency,  in  the 
four  governments  of  New  England,"  of  the  paper  emis- 
sions of  each  and  every  colony,  by  which  "  the  king's  in- 
26* 


310  MONEY. 

structions  to  the  commissioned  governments  are  evaded 
by  the  popular  charter  governments,  rendering  them  of 
no  effect." 

We  have  seen  Massachusetts  first  (1690),  and  after- 
wards (1709-11)  the  other  New  ^England  colonies,  with 
New  York  and  New  Jersey,  drawn  into  issues  by  the 
disastrous  expeditions  against  Canada  which  followed 
the  English  Re  volution  of  1688.  The  taste  for  paper 
money  once  acquired,  the  colonists  were  not  disposed  to 
go  back  to  the  rude  currencies  of  wampum  and  bullets, 
corn  and  cattle,  or  even  the  scanty  circulation  of  acci- 
dental dollars  from  the  West  Indies.  Issues  of  paper 
followed  fast  one  upon  another,  in  spite  of  efforts  to  re- 
strain them  made  by  the  Crown,  which  was  moved 
thereto  by  the  clamors  of  British  merchants,  who  found 
their  profits  seriously  impaired  by  the  uncertain  charac- 
ter of  the  colonial  money. 

But  it  deserves  to  be  noted  as  a  most  instructive  fact, 
that  redundancy  and  depreciation  came  primarily  not  so 
much  from  increasing  emissions  as  from  withdrawing 
the  safeguards  thrown  around  the  bills  at  their  issue, 
extending  the  time  for  which  they  were  to  circulate,  fail- 
ing to  impose  and  collect  the  taxes  which  had  been  vot- 
ed for  their  redemption,  or  even  re-issuing  bills  which 
had  been  redeemed  and  brought  into  the  Treasury  for 
cancellation.  By  every  such  device  the  people  of  the 
colonies  sought  to  deceive  themselves  and  the  Crown  as 
to  the  real  nature  and  extent  of  their  issues.  Prof. 
Sumner1  attributes  to  the  chafing  of  the  colonists  under 
the  restriction  and  final  prohibition  of  paper  money  by 
the  Crown,  much  of  the  force  which  the  Revolutionary 
movement  acquired  later  in  the  century. 

1  History  of  American  Currency,  p.  30. 


CONNECTICUT  PAPER  MONEY.  311 

Of  all  the  New  England  colonies,  Connecticut,  as  lias 
been  intimated,  managed  her  earlier  emissions  with 
most  caution  and  judgment.  At  the  first,  and  indeed 
generally,  her  issues  were  made  wholly  for  government 
expenses,  and  not  upon  loans  to  promote  industry. 
Habitually,  too,  the  redemption  of  the  bills  was  special- 
ly provided  for  by  the  assignment  of  taxes. 

"In  the  earlier  legislation  of  Connecticut,"  says  Dr. 
Bronson,  "the  same  law  which  authorized  the  emission 
of  bills  of  credit,  levied  a  tax,  payable  within  a  certain 
period,  to  sink  the  whole  issue,  together  with  the  five 
per  cent,  advance.  At  first  this  period  was  one  and  two 
years,  then  six  years,  then  eight,  nine,  twelve,  and  again 
eight  years.  After  the  close  of  the  war,  in  1713,  the  time 
was  frequently  shortened.  I  discover  no  instance  in  which 
this  tax  was  neglected.  The  same  principle  of  providing 
by  taxation  for  all  bills  put  in  circulation  was  observed 
so  far  as  can  be  ascertained,  with  regard  to  the  re-issues. 
I  know  not  whether  these  taxes  were  all  gath- 
ered in  accordance  with  the  original  intention.  As  they 
were  levied  in  gross  sums  and  required  additional  legis- 
lation for  their  apportionment,  according  to  lists,  very 
possibly  they  were  not.  But  I  have  met  with  no  law,  till 
after  the  Revolution,  for  their  postponement,  in  the  man- 
ner which  was  common  in  Massachusetts." — [Connecti- 
cut Currency,  p.  37.] 

We  may  not  unfairly  suppose  that  the  fact  that  Con- 
necticut had  a  charter  to  lose  made  her  more  mindful 
than  her  sisters  of  the  proclamation  of  Anne  (1704),  fix- 
ing the  value  of  money  in  the  colonies,  the  Act  of  Parlia- 
ment of  1707,  and  the  instructions  to  colonial  governors 
in  1720. 

Perhaps,  also,  we  may  conjecture  with  the  historian 
that  the  good  reputation  of  Connecticut  in  this  matter 


312  MONEY. 

was  due  in  part  to  the  circumstance  that,  in  making  up 
the  statutes  of  the  colony  for  publication,  all  laws  or- 
dering paper  issues  were  oddly  enough  overlooked,1  and 
that  the  Assembly  had  no  representative  of  the  king 
present  to  report  these  doings.  - 

But  the  common  circulation  of  the  paper  of  the  New 
England  colonies  had  before  long  the  effect  to  deprive 
the  people  of  Connecticut2  of  much  of  the  benefit  of  their 
prudence  and  self-restraint  in  issue,  and  ultimately  made 
them  careless  of  their  credit. 

The  course  of  depreciation  is  thus  stated  by  Dr.  Bron- 
son : 

1710  1  oz.  silver  plate  was  worth  8  shillings  in  paper. 
1721  "  12 

1724    "  "  «  15 

1729    "  "  "  18        "  " 

1739     "  "  "  26        "  " 

In  May  1740,  it  required  28  shillings  in  paper  to  buy 
an  ounce  of  silver,  and  Connecticut  undertook  the  work 
of  reformation.  £30,000  in  "new-tenor"3  bills  were  to 

1  Bronson,  Connecticut  Currency,  pp.  44-5. 

2  October,  1719,  the  bills  of  other  colonies  were  recognized.     The 
regular  taxes  of  that  session  might  be  paid  "  in  bills  of  credit  of  this 
colony,  with  the  usual  advance  [5  per  cent.],  or  in  the  true  bills,  with 
four  signers  [the  larger  bills],  of  the  Province  of  the  Massachusetts 
Bay,  or  in  the  true  bills  of  New  York,  Rhode  Island  or  New  Hamp- 
shire, without  any  advance  upon  them."     Later,  this  recognition  of 
the  New  Hampshire  and  Rhode  Island  issues  had  to  be  withdrawn. 

8  The  good  people  of  New  England  borrowed  this  device.  "  The 
Mongols,"  says  Col.  Yule,  "  commenced  their  issues  of  paper  money 
long  before  they  had  transferred  the  seat  of  their  government  to 
China.  Kublai  made  such  an  issue  in  the  first  year  of  his  reign 
(1260),  and  continued  to  issue  notes  copiously  to  the  end.  In  1287 
he  put  out  a  complete  new  currency,  one  note  of  which  was  to  ex- 
change against  five  of  the  previous  series  of  equal  nominal  value  1 " 


CONNECTICUT  PAPER  MONEY.  313 

be  issued,  of  which  <£8,000  should  be  devoted  to  cancel- 
ing the  depreciated  "old-tenor"  bills,  the  remainder  to 
be  loaned  out  on  mortgage.  These  bills  were  made  a 
legal  tender,  but  this  clause  was  repealed  upon  an  inti- 
mation from  the  Board  of  Trade. 

The  threatening  attitude  of  the  royal  government  in 
1740  appears  to  have  checked  the  emissions  of  paper 
money  for  four  years ;  but  the  outbreak  of  the  war  with 
France  led  to  enormous  issues  between  1744  and  1746, 
amounting  to  £131,000. 

"These  last  emissions"  says  Dr.  Bronson  "broke  the 
camel's  back.  .  .  .  An  ounce  of  silver  which,  in 
1739,  could  be  bought  for  28  shillings  in  paper,  and  in 
1744  32  shillings,  cost,  in  1749,  55  or  60  shillings.  Trade 
was  embarrassed  and  the  utmost  confusion  prevailed. 
No  safe  estimate  could  be  made  as  to  the  future,  and 
credit  was  almost  at  an  end.  No  man  could  safely  enter 
into  a  contract  which  was  to  be  discharged  in  money  at 
a  subsequent  date.  Prudence  and  sagacity  in  the  man- 
agement of  business  were  without  their  customary  re- 
ward." 

"The  new  issues,"  he  continues,  "called  new-ten- 
or, instead  of  benefiting 'the  currency  and  preventing 
depreciation,  had  a  disastrous  effect.  They  damaged  the 
old  emissions,  produced  new  complications,  introduced 
more  confusion,  and  sunk  rapidly  in  value.  A  break- 

The  italics  and  punctuation-marks  are  Col.  Yule's.  Had  he  been 
familiar  with  the  early  history  of  New  England,  he  never  would 
have  wasted  a  good  exclamation-point  in  that  way.  "In  both 
issues,"  continues  Col.  Yule,  "  the  paper  money  was,  in  official  valua- 
tion, only  equivalent  to  half  its  nominal  value  in  silver."  The  Caro- 
linians issued  paper  at  a  tenth  its  nominal  value  in  silver.  Col.  Yule 
says,  "  the  paper  money  was  called  chao."  The  American  colonies 
made  chaos  of  it. 

27 


314  MONEY. 

down  through  their  agency  became  necessary.  In  the 
expectation,  however,  that  they  would  fare  better  in  the 
general  wreck,  they  did  not  sink  so  low  as  the  old  emis- 
sions. They  came  finally  to  be  worth  in  the  proportion 
of  1 :3.5.  .  .  .  They  were  neyer  used  as  the  ordinary 
medium  of  exchange.  Accounts  were  kept  and  payments 
made  as,  previously,  in  old-tenor.  If  new-tenor  bills 
were  employed  in  a  business  transaction,  they  were  con- 
verted by  multiplication  into  old-tenor." — [Conn.  Curr. 
65-6.] 

In  1751,  Parliament,  moved  by  the  representations  of 
the  British  merchants,  passed  a  law  applying  to  His 
Majesty's  colonies  of  Rhode  Island,*  Connecticut,  Mas- 
sachusetts and  New  Hampshire,  declaring  that  it  should 
not  be  lawful  for  the  governors  of  these  colonies  to  give 
assent  to  any  act  whereby  bills  of  credit  should  be  cre- 
ated or  issued,  under  any  pretense,  or  whereby  said  bills 
should  be  re-issued,  or  the  time  set  for  their  redemption 
extended.  Such  acts  were  to  be  void,  and  any  represent- 
ative of  the  Crown  who  should  fail  of  his  duty  therein, 
was  to  be  dismissed  from  office. 

Acts  creating  bills  for  the  expenses  of  the  current 
year,  not  to  run  over  two  years,  .were  excepted  from  the 
operation  of  this  act ;  nor  was  the  law  to  extend  to  paper 
issued  in  extraordinary  emergencies,  as  in  case  of  inva- 
sion ;  provided  a  fund  should  be  established  for  sinking 
the  same  within  five  years,  but  such  bills  were  in  no  case 
to  be  constituted  a  legal  tender. 

Connecticut  made  some  feeble  and  hesitating  efforts 
to  comply  with  this  law,  as  to  the  redemption  of  her 
bills,  giving  one  oz.  of  silver  for  58s.  Sd.  in  paper,  or  at 
the  rate  of  Is.  for  Ss.  lOd  The  notes  of  Rhode  Island 
were  put  under  the  ban,  and  large  amounts  of  bills  re- 
ceived at  the  Treasury  in  payment  of  taxes  were  burned. 


CONNECTICUT  PAPER  MONEY.  ,  315 

Before,  however,  the  entire  outstanding  issues  could  be 
canceled,  war  with  France  broke  out  in  1755,  and  the 
remaining  bills  sank  to  88  shillings  per  oz. 

This  extreme  discredit  proved  the  way  out  of  the  em- 
barrassments of  trade.  Accounts  began  to  be  kept  in 
"proclamation  money;"  the  necessities  of  the  war  were 
provided  for  by  the  issue  of  notes  running  from  two  to 
five  years,  bearing  interest  at  5  per  cent,  per  annum, 
which  were  paid  out  to  the  public  creditors  "as  their 
value  should  be  at  the  time."  Taxes  were  imposed  suf- 
ficient to  sink  the  notes  at  maturity.  "  The  notes,"  says 
Dr.  Bronson,1  "seem  to  have  all  been  paid  at  maturity 
or  before.  I  find  no  evidence  that  those  which  had  once 
reached  the  treasury  were  ever  re-issued."  "Strictly 
speaking,  they  do  not  appear  to  have  constituted  a  part 
of  the  currency."  "During  all  this  period,  coin  was  the 
standard  of  value,  contracts  were  made  and  debts  paid 
in  it,  or  its  equivalent.  Government  bills,  like  ordinary 
commodities,  were  converted  into  it,  before  their  value 
could  be  stated." 

"Under  the  circumstances,"  continues  this  judicious 
writer,  "it  is  not  surprising  that  the  government  credit 
was  preserved  and  the  par  value  of  its  paper  maintained. 
The  experiment  proved  how  much  better,  more  profitable 
and  more  honorable,  it  was  to  raise  money  in  the  ordi- 
nary way,  paying  what  it  was  worth,  than  to  attempt  it  by 
the  fraudulent,  interest-saving  method  previously  resort- 
ed to." 

This,  however,  did  not  close  the  experience  of  colonial 
Connecticut  with  paper  money.  Between  October,  1771, 
and  October,  1774,  £39,000  in  bills  of  credit,  bearing  no 
interest,  running  two  years,  were  issued  for  the  expenses 

1  Connecticut  Currency,  pp.  82-3. 


316  MONEY. 

of  government,  seasonable  and  sufficient  taxes  being 
provided  for  their  redemption.  "Twenty-five  years  had 
elapsed  since  bills  of  this  kind  had  been  emitted.  They 
introduced  a  new  paper-money  era ;  but  as  they  did  not 
exceed  the  sum  required  by  the  trade  of  the  colony,  and 
were  not  interfered  with  by  the  notes  of  the  adjoining 
governments,  they  did  not  depreciate."1 

Such  was  the  condition  of  Connecticut  at  the  out- 
break of  the  Eevolution. 


We  have  traced  somewhat  at  length  the  colonial  ex- 
perience of  Connecticut  in  the  matter  of  paper  money, 
the  issues  of  that  colony  being  generally  confined  to  oc- 
casions of  public  necessity. 

Turning  to  Rhode  Island,  we  find  a  colony  in  which 
the  issue  of  bills  of  credit,  arising  out  of  similar  exigen- 
cies, created  an  appetite  for  paper  money  which,  by  in- 
dulgence, grew  to  an  overmastering  passion,  of  the  force 
of  which  we  could  have  no  more  striking  indication  than 
the  fact  that  the  unwillingness  of  that  State  to  submit  its 
right  of  independent  issue  was  the  principal,  if  not  the 
sole,  cause  of  Rhode  Island's  absence  from  the  Consti- 
tutional Convention  of  1787,  which  devised  the  subsist- 
ing Union  of  the  States. 

As  the  history  of  Connecticut  currency  has  been  writ- 
ten by  Dr.  Bronson,  that  of  Rhode  Island  has  been 
written  by  Mr.  Potter.  It  will  not  be  necessary  to  enter 
greatly  into  detail  in  following  the  course  of  paper- 
money  inflation  in  this  colony.  There  is  a  beautiful 
simplicity  about  the  Rhode  Island  issues  which  con- 
duces to  brevity  of  description.  The  characteristic  dif- 

1  Bronson,  p.  84. 


RHODE  ISLAND  ISSUES.  317 

ference  between  them  and  the  Connecticut  emissions  is 
that  they  were  generally  of  choice,  and  for  the  expressed 
object  of  advancing  trade  and  promoting  manufactures. 

"An  important  distinction,"  says  Mr.  Potter,  "is  here 
to  be  noticed,  between  bills  emitted  for  the  supply  of 
the  treasury,  which  emissions  were  generally  in  small 
sums,  as  occasion  required,  and  a  Bank,  which  was  an 
emission  generally  of  a  large  sum,  not  for  the  exigencies 
of  government,  but  to  be  loaned  out,  at  interest,  to  the 
people,  on  mortgage  security,  for  a  term  of  years." 

The  use  of  the  word  Bank  in  the  colonial  days  was 
peculiar.  With  us  the  word  signifies  an  institution  for 
conducting  the  functions  of  deposit,  of  exchange,  and  of 
discount,  with  generally  a  building  of  its  own,  and  with 
permanent  officials.  A  Bank  in  Rhode  Island  or  Mas- 
sachusetts was  simply  a  batch  of  paper  money. 

The  first  emissions  of  Rhode  Island  were  in  1710,  ag- 
gregating <£7,000,  in  sums  from  £5  down  to  2  shillings. 
In  1715,  £30,000  was  issued  (£5  to  1  shilling),  which, 
with  £10,000  more  the  same  year,  became  known  as  the 
First  Bank.  The  bills  were  loaned  for  ten  years,  at  5 
per  cent,  interest,  on  mortgage  of  real  estate.  In  1721 
came  another  Bank,  of  £40,000,  five  years  loan,  interest 
payable  in  hemp  or  flax,  the  reason  for  the  emission  be- 
ing, in  addition  to  the  alleged  scarcity  of  specie,  the  ex- 
pediency of  encouraging  the  growth  of  these  staples. 

In  1728,  under  pressure  from  the  colony's  debtors, 
the  time  of  payment  for  previous  loans  was  extended,1 

1  "New  claimants  who  desired  to  come  under  this  shower  of 
wealth •  clamored  for  new  banks  on  the  ground  of  'justice'  and 
'  equality.'  All  who  had  received  loans  joined  as  a  compact  body  in 
favor  of  further  issues.  All  new  issues  to  others  depreciated  the 
currency  and  enabled  them  to  pay  back  more  easily.  However, 
they  did  not  in  many  cases  pay  at  all,  either  principal  or  interest. 


318  MONEY. 

and  a  Third  Bank,  of  .£40,000,  was  emitted,  this  time  on 
account  of  the  decay  of  trade  and  commerce — and  small 
wonder!  In  1731  and  1733  came  other  Banks,  the  lat- 
ter for  £100,000." 

"The  emissions  of  paper  money,"  says  Mr.  Potter, 
"were  generally  opposed  by  the  merchants  and  business 
men,  and  the  more  intelligent  part  of  the  community. 
They  were  generally  advocated  by  the  multitude  who 
were  indebted  and  distressed  in  pecuniary  circum- 
stances, as  a  measure  of  relief.  It  was  an  easy  way  of 
paying  old  debts.  .  .  .  Pretenses  were  never  want- 
ing. The  colony  was  in  debt,  the  fort  was  out  of  repair, 
or  a  new  jail1  or  court-house  was  to  be  built.  And 
when  the  specie  had  been  driven  away  by  the  increase 
of  paper  money,  the  'scarcity  of  silver'  was  a  fresh  ex- 
cuse for  further  issues." 

Of  the  interest  of  the  emission  of  1731,  a  bounty  was 
established  on  flax,  hemp,  whale  oil,  whalebone,  and 
codfish.  Of  the  interest  of  the  Bank  of  1733,  as  that  of 
1721,  half  was  to  be  divided  ratably  among  the  towns. 

From  this  time  forward,  paper  money  became  the 
principal  subject  of  political  controversy.  "Governors 

Having  accumulated  large  arrears,  they  decamped,  and  when  process 
issued  could  not  be  found.  The  mortgaged  estates  were  found  en- 
tangled in  inextricable  confusion.  The  legislatures,  composed  largely 
of  men  in  the  system,  would  allow  no  extreme  measures.  Fore- 
closures were  rare,  and  did  not  pay  for  the  trouble  and  excitement 
they  caused." — [Sumner,  Hist.  Am.  Currency,  p.  21.] 

1  The  Pennsylvania  issue  of  April  10,  1775,  was  for  the  purpose  of 
erecting  a  jail  in  Philadelphia.  It  bore  on  the  reverse  a  picture  of 
that  building,  known  as  the  Walnut  Street  Prison.  Mr.  Phillips  says : 
"  These  notes  are  commonly  but  incorrectly  believed  to  represent  the 
Independence  Hall." 

"  North  Carolina  issued  paper  to  build  a  palace  for  the  governor. 
A  similar  project  was  started  in  New  Jersey." — [Sumner,  p.  39.] 


RHODE  ISLAND  ISSUES.  319 

were  elected  and  turned  out,  as  the  different  interests 
happened  to  prevail."  The  debtor  party  needed  only 
to  come  into  power  once  in  ten  or  five  years,  to  secure 
the  privilege  of  paying  their  creditors  off  at  pretty  much 
any  rate  they  might  choose  to  fix,  as  convenient  and 
c greeable  to  themselves. 

In  1738  a  Bank  of  £100,000  was  issued  with  new  pro- 
visions for  securing  the  interest  of  the  mortgages,  of 
which  the  colony  had  thus  far  been  largely  defrauded. 
In  1740,  for  fitting  out  a  privateer  against  the  Spaniards, 
£20,000  were  issued.  These  bills  were  declared  to  be 
equivalent  to  a  certain  amount  of  silver.  The  rates  at 
which  they  passed  in  circulation  showed  the  inefficacy  of 
mere  assertion.  Now  began  the  denominations  of  Old 
and  New-tenor,  which  we  noted  in  the  history  of  Connect- 
icut. In  1741  the  Assembly  made  6s.  9c?.  of  the  new- 
tenor  equal  to  27  shillings  of  the  old.  In  1749,  a  Com- 
mittee of  the  General  Assembly  presented  the  following 
as  the  condition  of  the  paper  money  issues : 

Outstanding  of  the  Bank  of  1728,  -  £8,000 

1731,      -        -    12,000 
1733,  -  40,000 

1738,      -        -    90,000 
1740,  -  20,000 

1743,      -        -    40,000 


£210,000 

This  in  addition  to  bills  issued  to  supply  the  treasury ; 
mostly  in  1746-7— £110,444. 

This,  for  a  colony  no  larger  than  Rhode  Island,  might 
seem  sufficient  to  promote  manufactures  and  encourage 
trade,  but  it  was  not,  and  in  1751  the  Ninth  Bank  was 
issued,  this  time  for  £25,000,  but  on  new  plates.  A  great 
deal  was  hoped  for  from  this  circumstance.  The  issue 
was  for  giving  bounty  on  flax,  woolen  manufactures  and 


320  MONEY. 

the  fisheries.  The  bills  were  to  be  made  equal  to  silver 
at  6s.  9d.  per  oz. ;  which  was  to  be  equal  to  13s.  6d.  new- 
tenor,  or  54  shillings  old-tenor. 

But  why  pursue  the  narrative?  The  colony,  under 
the  complete  domination  of  the-  debtor  party,  had  con- 
tinued its  issues  to  the  almost  total  destruction  of  trade 
and  industry.  In  1763,  the  war  with  France  being  con- 
cluded, Parliament  re-enacted  the  prohibition  of  colonial 
acts  for  issuing  paper  money ;  and  a  scale  of  deprecia- 
tion was  fixed  by  the  courts  for  the  settlement  of  debts. 
It  put  the  Spanish  milled  dollar  at  the  rate  of  £7  in  old- 
tenor  notes.  September  1764,  old-tenor  bills  were  or- 
dered to  be  received  in  payment  of  a  tax,  at  23^- :  1  of 
lawful  money.  February,  1769,  6  shillings  lawful  money 
were  ordered  to  be  reckoned  equal  to  £8  old-tenor. 
By  act  of  1770,  the  old-tenor  notes  were  to  be  ex- 
changed at  this  rate  and  no  longer  allowed  to  circulate. 


Massachusetts  had  led  the  way  in  the  emission  of  pa- 
per money  in  1690.  The  history  of  the  issues  of  this 
colony  has  been  written  by  Mr.  Felt.  These  took  both 
forms  described,  that  of  issues  for  the  current  ex- 
penditures of  government,  or  for  extraordinary  war  ex- 
penses, and  that  of  Banks,  or  loans  to  the  public,  for 
the  promotion  of  the  shipping,  fishing,  or  manufactur- 
ing interests.  The  following  table  shows  the  deprecia- 
tion of  the  paper  money : l 

1706,  Exchange  on  London        -  135 

1713,        "          "        "  150 

1716,  "          "        "  175 

1717,  "          "        "  -    225 

1  Simmer,  pp.  35-6. 


MASSA  CHUSETTS  REDEEMS.  321 

1722,  Exchange  on  London  270 

1728,        "          "        "  -    340 

1730,        "          "        "  380 

1737,        "          "        "  -    500 

1741,        "          "        "  550 

1749,         "          «        «  .    1100 

The  rapid  rise  between  1741  and  1749  had  been  due 
to  the  large  issues  involved  in  the  successful  expedition 
against  Louisburg.  Now,  however,  Massachusetts  led 
the  way  towards  a  restoration  of  commercial  values, 
though  not  without  that  repudiation  in  which,  as  history 
teaches,  excessive  issues  almost  invariably  result.  Par- 
liament voted  to  ransom  Louisburg  from  the  colonies. 
The  sum  coming  to  Massachusetts  was  £138,649  ster- 
ling, which,  at  11 : 1,  would  nearly  cancel  the  paper. 
Under  the  enlightened  and  energetic  lead  of  Hutchinson, 
the  colony  was  brought  to  ask  that  its  share  of  the  re- 
payment be  shipped  in  silver  and  copper  coins,  to  be 
used,  as  far  as  they  would  go,  in  canceling  the  bills  of 
credit. 

"The  silver,"  says  Prof.  Sumner,  "was  sent  over  and 
exchanged.1  Prices  were  adjusted  to  this  new  measure, 
and  silver  remained  in  circulation  when  it  no  longer 
had  a  meaner  rival.  The  'shock*  which  was  appre- 
hended did  not  occur.  The  only  shock  was  to  Rhode 
Island  and  New  Hampshire,  who  found  their  trade 
transferred  to  the  'silver  colony,'  and  their  paper  sud- 
denly and  heavily  depreciated.  The  West  India  trade 
of  Massachusetts  had  been  largely  done  through  New- 
port. It  was  now  transferred  to  Salem  and  Boston." 

1  The  amount  redeemed  was  £1,792,236  5s.  Id.  "For  years," 
says  Mr.  Felt,  "  petitions  continued  to  be  laid  before  the  legislature, 
that  parcels  of  them  discovered  in  old  desks,  bottoms  of  leather 
chairs,  and  other  private  places  of  deposit,  migh't  be  allowed  and  ex- 
changed."— [Massachusetts  Currency,  p.  131.] 


322  MONEY. 

But  though  Massachusetts  thus,  by  a  resolute  effort, 
rid  herself  of  the  incubus  upon  her  trade  and  industry, 
treasury-certificates,  bearing  interest,  were  systematic- 
ally issued,  without  prejudice  to  the  public  interests, 
until  the  outbreak  of  the  Bevolution. 


It  has  been  stated  that  New  York  and  New  Jersey, 
joining  with  the  New  England  colonies  in  the  second 
expedition  against  Canada,  had  followed  the  lead  of 
Massachusetts  in  issuing  paper  money.  Of  the  issues 
of  New  York  the  author  of  the  tract,  "  Currencies  of  the 
British  Plantations  in  America,"  writing  in  1740,  states 
that  they  were  originally  issued  in  1709,  bearing  inter- 
est, but  that  this  was  taken  off  in  1710,  "  upon  pretense 
that  it  occasioned  them  to  be  hoarded  up  as  bonds,  and 
did  frustrate  their  currency." 

Of  the  Jersey  paper  money  the  same  writer  remarks  : 
"  The  Jersey  bills  keep  their  credit  better  than  those  of 
Pennsylvania  and  New  York,  for  these  two  reasons : 
First,  New  York  bills  not  being  current  in  Pennsylvania, 
and  Pennsylvania  bills  not  current  in  New  York,  but 
Jersey  bills  current  in  both,  all  payments  between  New 
York  and  Pennsylvania  are  made  in  Jersey  bills.  Sec- 
ond, In  the  Jerseys,  failure  of  the  loan-payments  at  the  day 
appointed  is  confessing  judgment,  and  thereafter  only  30 
days'  redemption  of  mortgage  is  allowed." 

The  history  of  the  New  Jersey  paper  money  has  been 
written  by  Mr.  Henry  Phillips,  Jr.  * 

Of  all  the  colonies  issuing  paper  money,  none  deserves 
more  attention  from  the  student  of  political  economy 
than  Pennsylvania. 

"  In  our  colony  of  Pennsylvania,"  wrote  David  Hume 
to  the  Abbe  Morellet,  "the  land  itself,  which  is  the 
chief  commodity,  is  coined  and  passed  into  circulation." 


THE  MIDDLE  STATES.  323 

The  phrase  of  Hume  appears  earlier  in  the  tract  of 
Benjamin  Franklin l  (then  a  young  man  of  twenty-three 
years),  published  in  1729,  entitled  "A  Modest  Enquiry 
into  the  Nature  and  Necessity  of  a  Paper  Currency." 
"For  as  bills  issued  upon  money  security,"  wrote  the 
youthful  philosopher,  "are  money,  so  bills  issued  upon 
land  are  in  effect  coined  land"2 

The  paper-money  loan-system  of  Pennsylvania  was  as 
follows:  The  trustees  of  the  loan-office  were  to  lend 
out  the  bills  of  the  colony  upon  real  security  of  at  least 
double  the  value,  for  a  term  of  sixteen  years,  to  be  re- 
paid in  yearly  installments,  with  interest.  Thus,  one- 
sixteenth  of  the  principal  was  to  be  yearly  paid  back. 
The  interest  was  applied  to  the  public  services.  The 
principal  was,  for  the  first  ten  years,  to  be  let  out  again 
to  fresh  borrowers.  The  new  borrowers,  from  year  to 
year,  were  to  have  the  money  for  only  the  remaining 
part  of  the  term  of  sixteen  years,  repaying  by  fewer  and 
proportionately  larger  installments.  During  the  last 
six  years  of  the  sixteen,  the  sums  paid  in  were  not  to  be 
reloaned,  but  the  notes  burned,  so  that  the  whole  might 
be  called  in,  and  the  accounts  completely  settled  at  the- 
end  of  the  term.  Of  this  system,  Governor  Pownall 

1  Prof.  Sumner  says :  "  The  great  philosopher  was  not  unbiased  in 
his  judgment." — [P.  19n.]     Franklin,  in  his  autobiography,  gives  the 
following  account  of  his  interest  in  the  emissions:    "My  friends 
there,  who  considered  that  I  had  been  of  some  service,  thought  fit  to 
reward  me  by  employing  me  in  printing  the  money;  a  very  profitable 
job,  and  a  great  help  to  me." 

2  The  following  play  upon  words  occurs  in  the  correspondence  of 
Wm.  Short  and  Gouverneur  Morris:    "There  is  a  plan  for  paper 
money  now  before  the  Assembly.     .     .     .     Some  insist  on  calling  it 
2>apier  terre,  and  the  idea  was  near  passing." — [Wm.  Short  to  G-. 
Morris,  Sept.  12,  1790,  Paris.]     Mr.  Morris  replies :  "  Apropos  of  this 
currency,  this  papier  terre,  I  could  tell  them  of  a  country  where  there 
is  a  papier  terre,  now  mort  et  enterre" 


324  *  MONEY. 

wrote  :  "  I  will  venture  to  say  that  there  never  was  a 
wiser  or  a  better  measure,  never  one  better  calculated 
to  serve  the  uses  of  an  increasing  country ;  that  there 
never  was  a  measure  more  steadily  or  more  faithfully 
pursued  for  forty  years  together,  than  the  loan-office  in 
Pennsylvania." 

In  spite  of  Governor  Pownall's  panegyric,  however, 
what  with  increased  loans  and  the  extension  of  the 
terms  of  repayment,  this  system,  the  perfection  of  what 
Mr.  McLeod1  calls  Lawism,  viz.,  the  basing  of  currency 
upon  land,  was  not  found  incompatible  with  a  deprecia- 
tion represented  by  the  rise  of  exchange  on  London, 
first  to  160  :100,  and  later,  in  1748,  to  180  or  190.2 

"When  the  paper  money  of  Pennsylvania  was,  with 
that  of  the  other  colonies,  outlawed  by  the  act  of  Par- 
liament of  1763,  Dr.  Franklin  wrote  a  pamphlet  protest- 
ing against  the  act. 


"In  Maryland,"  says  the  writer  of  the  tract  so  fre- 
quently quoted,  "  silver  continued  at  proclamation  value 
until  1734,  with  a  considerable  concomitant  truck-trade 
as  a  medium,  viz.,  tobacco.  They  then  emitted  £90,600 
sterling  in  bills,  which,  though  payable  to  the  possessors 
in  sterling,  well  secured,  the  sum  being  too  large,  and 
the  periods  too  long,  viz.,  partial  payments  of  fifteen 
years  period  each,  exchange  immediately  rose  from  35 
to  100  and  150  per  cent." 

The  history  of  Virginia  paper  money  has  been  written 
by  Mr.  Phillips.  That  history,  through  the  colonial 
period,  is  brief  and  comparatively  barren.  No  bills  of 
credit  existed  in  Virginia  before  the  old  French  "War. 
In  1755  an  issue  of  £20,000  was  authorized  to  meet  the 

1  Economical  Philosophy,  ii,  338. 
2  Sumner,  p.  36. 


THE  SO  UTHERN  STA TES.  325 

expenses  of  the  Braddock  expedition.  The  notes  were 
to  bear  interest  at  five  per  cent.;  were  lawful  tender  in 
payment  of  debts,  and  the  penalty  of  death  was  de- 
nounced for  altering  or  counterfeiting  them.  In  the  same 
year  a  further  issue  of  £40,000  was  made  to  discharge 
the  bounties  proposed  by  the  government  for  killing  or 
capturing  hostile  Indians,  £30  being  offered  for  each 
scalp.  Frequent  issues  took  place  between  1755  and 
1775,  but  we  have  little  information  respecting  the  de- 
gree of  depreciation  which  resulted. 

The  issues  of  North  Carolina  were  so  much  out  of 
proportion  to  the  requirements  of  the  colony's  trade, 
that  exchange  on  London  rose  in  1740  to  1400 : 100. 

A  full  account  of  the  paper  money  of  South  Carolina, 
is  given  by  Dr.  Kamsay  in  his  history  of  that  colony 
and  State.  The  first  emission  of  paper  took  place  in 
connection  with  the  expedition  against  St.  Augustine 
in  1702,  being  for  £8,000.  In  1712,  a  Land  Bank  was 
established ;  the  issue  was  for  £52,000,  the  interest  and 
one-twelfth  of  the  principal  to  be  repaid  annually.  A 
fourth  emission  took  place  in  1716,  in  connection  with 
the  war  against  the  Yamasses. 

In  1736  the  provincial  House  of  Commons  carried 
their  point,  an  increase  of  paper  money,  against  the 
King's  Council;  and  an  emission  of  £210,000  took  place, 
to  be  loaned  at  8  per  cent. 

Dr.  Kamsay  records l  the  powerful  and  dignified  pro- 
test offered  by  Arthur  Middleton  and  other  opponents 
of  this  measure;  and  notes  it  as  remarkable  that  the 
struggles  over  the  emission  of  1736,  and  in  particular 
this  protest,  were  not  referred  to  in  the  [Revolutionary 
debates  over  paper  money. 

1  History  of  South  Carolina,  ii,  93. 
28 


326  MONEY. 

"In  the  interval  a  new  race  had  sprung  up  who  had  no 
personal  knowledge  of  them.  Tradition  was  obscure, 
history  was  silent.  Newspapers  gave  no  information. 
Old  official  records  were  seldom  examined  or  referred 
to.  From  these  causes  the  Carolinians  of  1776  had  lit- 
tle advantage  from  the  knowledge  of  what  their  fathers 
had  done  in  1736  or  1719." 

Under  the  effects  of  these  emissions,  exchange  on 
London  had  risen  by  1740  to  800  : 100. 

The  author  of  the  tract  on  the  "Currencies  of  the 
British  Plantations"  charges  bad  faith  against  the  South 
Carolinians  of  this  time.  "  Their  legislatures  have  been 
most  notoriously  guilty  of  breach  of  public  faith  in  not 
canceling  their  bills."  Writing  in  1740,  he  declares 
that  there  were  then  outstanding  about  .£250,000  in 
province  bills,  whereof  above  £100,000  were  "  without 
fund  or  period."  "  The  whole  amount  issued  in  bills  of 
credit  by  provincial  South  Carolina,"  says  Dr.  Ramsay, 
"  in  the  sixty-eight  years  which  intervened  between  the 
first  and  last  emissions  of  paper,  was  £605,000,  of  which 
more  than  two- thirds  were  secured  by  mortgaged  prop- 
erty." 

THE  PAPER  MONEY  OF  THE   REVOLUTION. 

Of  the  emissions  of  Paper  Money  during  the  Revolu- 
tionary period  of  our  history,  we  have  accounts  from  a 
great  variety  of  sources.  Inasmuch  as  those  author- 
ized by  the  Continental  Congress  were  made  under  a 
single  and  constant  impulse,  viz.,  the  overwhelming 
financial  necessities  of  the  new  government,  engaged  in 
a  desperate  struggle  for  existence,  the  facts  can  be 
briefly  stated. 

The  question  has  sometimes  been  raised  by  econo- 
mists whether  issues  of  Inconvertible  Paper  Money  are 
ever  really  necessary,  even  in  time  of  war.  However 


REVOL  UTIONAR  Y  PAPER.  327 

this  question  might  be  decided  with  reference  to  ordi- 
nary governments,  the  situation  of  the  Continental  Con- 
gress must  be  admitted  to  have  been  highly  exception- 
al. In  only  a  qualified  sense  was  it  a  government  at 
all.  It  had  no  coercive  power.  It  could  not  levy  taxes. 
Even  its  moral  authority  over  the  constituent  States  was 
very  slight.  Its  requisitions  for  money,  its  recommen- 
dations of  policy,  were  treated  with  neglect,  if  not  with" 
open  contempt.  The  States,  with  one  or  two  honorable 
exceptions,  hardly  made  a  show  of  doing  their  duty  by 
the  government  of  the  Confederation.  There  are  few 
more  distressing  chapters  in  history  than  that  which  re- 
cords  the  delinquency  of  the  States  which  had  pledged 
life,  fortune  and  sacred  honor  to  the  cause  of  American 
independence. 

The  first  emission  of  Continental  bills  of  credit  was 
ordered  in  June,  1775,  the  amount  being  $2,000,000;  in 
July  $1,000,000  was  ordered ;  in  November,  $3,000,000. 
During  1776  the'  emissions  amounted  to  $19,000,000. 

"The  United  States,"  says  Dr.  Ramsay,  "for  a  con- 
siderable time  derived  as  much  benefit  from  this  paper 
creation  of  their  own,  though  without  any  established 
funds  for  its  support  or  redemption,  as  would  have  re- 
sulted to  them  from  the  free  gift  of  as  many  Mexican 
dollars.  .  .  .  But  there  was  a  point,  both  in  time 
and  quantity,  beyond  which  this  congressional  alchemy 
ceased  to  operate.  That  time  was  about  eighteen 
months  from  the  date  of  their  first  issue ;  and  that  quan- 
tity about  $20,000,000."— [History  of  the  United  States, 
ii,  308-9.] 

Whether  or  not  Dr.  Eamsay  has  correctly  estimated 
the  amount  of  Continental  bills  which  might  have  circu- 
lated without  depreciation,  no  room  was  left  for  doubt 
by  the  close  of  1776  that  the  limit  had  been  passed. 


328  MONEY. 

Depreciation,  that  unmistakable  sign  of  excess,  had  al- 
ready proceeded  so  far  that  the  bills  stood  at  50  per 
cent,  discount. 

The  worst  feature  of  the  situation  was  that  the  States, 
despite  remonstrance  and  entreat y,  ^continued  also  to 
emit  bills  of  credit.  The  Continental  Congress  could 
not  tax  the  people ;  the  States  would  not.  In  most  of 
the  States  scarcely  an  effort  was  made  from  first  to  last 
to  meet  the  charge  of  the  war  manfully  by  assessment 
and  contribution.1  With  a  public  morality  deeply  per- 
verted by  the  colonial  experience  of  paper  money,  with 
the  false  start  of  1775-6,  and  with  the  apprehension  on 
the  part  of  each  that  its  neighbors  would  take  advan- 
tage of  any  forbearance  it  might  exercise  to  fill  the 
channels  of  circulation  with  their  bills,  the  States  fell 
without  a  struggle  into  the  wretched  policy  of  constant- 
ly increasing  issues  of  constantly  depreciating  paper. 
Mr.  Shuckers  gives  the  following  table  of  the  State  is- 
sues. [It  will  be  noted  that  in  some  States,  from  lack 
of  the  requisite  data,  the  total  issues  are  not  distributed 
among  the  several  years  of  the  war.] 

4  The  following,  from  the  observations  on  the  finances  of  the 
United  States,  addressed  by  Congress  to  the  French  Minister,  con- 
tains a  frank  acknowledgment  of  the  unwillingness  to  resort  to  tax- 
ation to  meet  the  expenses  of  the  war : 

"  America  having  never  been  much  taxed,  nor  for  a  continued  length 
of  time,  being  without  fixed  government,  and  contending  against 
what  was  once  the  lawful  authority,  had  no  funds  to  support  the 
war ;  and  the  contest  being  upon  the  very  question  of  taxation,  the  levy- 
ing of  imposts,  unless  from  the  last  necessity,  would  have  been  mad- 
ness. To  borrow  from  individuals  without  any  visible  means  of 
repaying  them,  while  the  loss  was  certain  from  ill  success,  was 
visionary.  A  measure,  therefore,  which  had  been  early  adopted,  and 
thence  became  familiar  to  the  people,  was  pursued. '  This  was  the 
issuing  of  paper  notes  representing  specie,  for  the  redemption  of 
which  the  public  faith  was  pledged." 


REVOLUTIONARY  PAPER. 


329 


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330  MONEY. 

"It  seeins  to  be  pretty  clear,"  says  Mr.  Sliuckers, 
"  that  the  issues  of  continental  bills  of  credit  were  ma- 
terially in  excess  of  the  emissions  authorized  by  Con- 
gress."— [Finances,  etc,,  of  the  Kevolution,  p.  110.] 

In  the  face  of  a  premium  on  silver^of  more  than  100 
per  cent.,  Congress  resolved  that  the  nominal  value  of 
gold  and  silver  had  been  raised,  just  as  in  England, 
during  the  Bullion  Controversy,  the  government  de- 
clared that  the  bank-note  had  not  fallen,  but  the  guinea 
had  risen,  in  value.  Efforts  were  made  to  suppress  the 
tell-tale  premium ;  and  those  were  denounced  as  enemies 
of  liberty  who  recognized  a  specie  price,  as  distinguished 
from  a  paper  price,  of  commodities.  In  spite  of  all, 
however,  the  depreciation  went  on  through  1777,  as  the 
emissions  continued.  The  authorized  issues  of  the  year 
were  $13,000,000.  The  situation  was  now  complicated 
by  the  fact  that  the  British  authorities  began  to  dissem- 
inate counterfeits  of  the  Continental  money,  as  they  sub- 
sequently did  in  respect  to  the  assignats  of  revolutionary 
France.  Extensive  counterfeiting  also  went  on  at  home. 
And  still  we  find  the  States  disregarding  the  entreaties, 
of  Congress  to  undertake  in  earnest  the  taxation  of  their 
citizens,  in  place  of  a  resort  to  further  issues.  More  at- 
tention was  paid  to  the  recommendation  by  Congress, 
in  November,  1777,  of  laws  to  limit  prices,  and  to  au- 
thorize supplies  to  be  seized  in  the  hands  of  "  forestall- 
ers"  and  "engrossers."  Many  of  the  States  passed 
stringent  laws  to  repress  the  premium  on  silver  and  to 
restrain  speculators  from  forestalling  and  engrossing  the 
market  with  a  view  to  secure  the  anticipated  rise  of 
prices  due  to  continued  inflation.  Public  meetings 
were  held  to  denounce  speculation,  and  mob-law  was  not 
infrequently  resorted  to  against  the  holders  of  goods, 
with  the  same  popular  applause  which  Jiad  greeted  the 


REVOL  UTIONAR  Y  PAPER.  331 

destruction  of  the  stamped  paper  in  1765.  All  such 
measures,  however,  were  powerless  to  keep  up  the 
credit1  of  the  Continental  paper.  As  prices  rose,  the 
necessities  of  the  government  increased.  The  emissions 
authorized  during  1778  amounted  to  $63,500,000. 

In  December  of  that  year  Congress,  in  a  public  ad- 
dress, indignantly  repelled  the  insinuation  that  the  bills 
of  credit  would  be  allowed  to  sink  in  the  hands  of  the 
holders,  and  in  the  September  following  issued  a  second 
address  of  the  same  purport. 

"  "We  should  pay  an  ill  compliment  to  the  understand- 
ing and  honor  of  every  true  American,  were  we  to  ad- 
duce many  arguments  to  show  the  baseness  or  bad  pol- 
icy of  violating  our  national  faith,  or  omitting  to  pursue 
the  measures  necessary  to  preserve  it.  A  bankrupt, 
faithless  republic  would  be  a  novelty  in  the '  political 
world,  and  appear  among  reputable  nations  like  a  com- 
mon prostitute  among  chaste  and  respectable  matrons. 
.  .  .  Apprised  of  these  consequences,  knowing  the 
value  of  national  character  and  impressed  with  a  due 
sense  of  the  immutable  laws  of  justice  and  honor,  it  is 
impossible  that  America  should  think  without  horror  of 
such  an  execrable  deed." 2 

The  emissions  of  1779  amounted  to  $140,000,000,  of 
the  coin  value,  according  to  Mr.  Jefferson,  of  $7,329,278. 

The  course  of  depreciation  during  the  year  was  as 
follows : 

1  Napoleon  was  wont  to  say,  "  Tout  peut  se  retablir."      It  may 
be  so,  but,  as  M.  Thiers  observes,  there  is  nothing  which  it  is  so  diffi- 
cult to  restore  as  the  reputation  of  paper  money. 

2  "  That  the  money  should  finally  sink,  or  that  it  should  be  re- 
deemed by  a  scale  of  depreciation,  were  events  neither  foreseen  nor 
expected  by  the  bulk  of  the  people. — [Ramsay,  Hist,  of  South  Caro- 
lina, ii,  98.] 


332  MONEY. 

Jan.  14,     -        -      8:1        June  4  and  17,        20  : 1 
Feb.  3  and  12,        10  : 1        Sept.  17,  24 : 1 

April  2,     -        -    17:1        Oct,  14,  30:1 

May  5,  -  24 : 1        Nov.  17  and  29,  38.5  : 1 

On  the  18th  of  March,  1780,  Congress  swallowed  all 
its  brave  words  about  public  faith  and  the  honor  of  re- 
publics, and  authorized  silver  to  be  received  for  paper 
at  the  rate  of  1 : 40.  All  bills  brought  in  were  to  be 
destroyed.  Certificates  not  to  exceed  in  nominal  value 
one-twentieth  of  the  bills  thus  destroyed  were  to  be  re- 
issued, redeemable  in  specie  after  six  years,  bearing  in- 
terest at  five  per  cent.  Funds  were  to  be  established 
by  the  individual  States  for  their  redemption,  the  faith 
of  the  United  States  being  pledged  as  an  additional  se- 
curity. Six-tenths  of  these  bills  were  to  be  delivered 
to  the  States,  in  due  proportions ;  four-tenths  to  be  re- 
served for  the  use  of  Congress. 

Such  was  the  end  of  the  "Continental  Currency." 
The  new  certificates  never  acquired  to  any  considerable 
extent  the  character  of  money,  and  soon  sank  to  one- 
eighth  their  nominal  value,  so  that  the  account  of  a 
holder  of  $320  in  Continental  paper  money  be  thus 
stated :  $320  X  -jV  =  $8  in  certificates.  $8  at  .125  =  $1 
in  silver. 

So  poorly  was  the  security  offered  by  Congress  es- 
teemed by  the  people  that  the  greater  part  of  the  orig- 
inal issue  was  not  brought  in  for  redemption  in  the  new 
certificates.1  "It  continued,"  says  Mr.  Jefferson,  "to 

1  "  88  millions,  received  into  the  State  Treasuries  (at  the  close  of 
the  war)  in  payment  of  taxes  at  the  rate  of  40  for  1,  had  been  re- 
placed by  bills  of  the  "new-tenor,"  to  the  amount  of  $4,400,000, 
bearing  interest  at  6  per  cent.  Massachusetts,  New  York  and  Rhode 
Island  had  thus  taken  up  and  redeemed  their  entire  quota  of  the 
old  paper.  Connecticut,  Delaware,  the  Carolinas  and  Georgia  had 


REVOL  UTIONAR  Y  PAPER.  .  333 

circulate  and  to  depreciate"  till  the  end  of  1780,  when  it 
had  fallen  to  75  : 1,  and  the  money  circulated  from  the 
French  army1  being,  by  that  time,  sensible  in  all  the 
States  north  of  the  Potomac,  the  paper  ceased  its  circu- 
lation altogether  in  those  States.  In  Virginia  and  North 
Carolina  it  continued  a  year  longer,  within  which  time 
it  fell  to  1000  : 1,  and  then  expired,  as  it  had  done  in  the 
other  States,  without  a  single  groan."  Or,  as  Dr.  Earn- 
say  more  poetically  expresses  it,  "Like  an  aged  man, 
expiring  by  the  decays  of  nature,  without  a  sign  or  a 
groan,  it  gently  fell  asleep  in  the  hands  of  its  last  pos- 


Of  the  effects  produced  upon  society  and  industry  by 
paper  money  thus  rapidly  depreciating,  it  cannot  be 
necessary  to  enter  into  an  analysis.  "  The  property  of 
the  inhabitants,"  says  Dr.  Ramsay,  "in  a  considerable 
degree  changed  its  owners.  Many  opulent  persons,  of 
ancient  families,  were  ruined  by  selling  paternal  estates 
for  a  depreciating  paper  currency,  which,  in  a  few  weeks 
would  not  replace  half  of  the  real  property  in  exchange 
for  which  it  was  obtained.  Many  bold  adventurers 
made  fortunes  in  a  short  time  by  running  in  debt  be- 
yond their  abilities.  Prudence  ceased  to  be  a  virtue  and 
rashness  usurped  its  place.  The  warm  friends  of  Amer- 
ica, who  never  despaired  of  their  country,  and  who 
cheerfully  risked  their  property  in  its  support,  lost  their 

taken  up  none ;  the  remaining  States  had  taken  up  and  replaced  but 
a  part  of  their  quota." — [Hildreth,  Hist.  U.  S.,  iii,  446.] 

1  Not  only  the  silver  brought  over  by  the  French,  but  that  dis- 
bursed by  the  British  troops  within  their  lines,  served  to  fill  the  void 
in  the  circulation,  so  soon  as  the  paper  money  was  got  out  of  the 
way. 

28* 


334  ,  MONEY. 

property,  while  the  timid  who  looked  forward  to  the  re- 
establishment  of  British  government,   not  only  saved 
their  former  possessions,  but  often  increased  them."- 
[History  of  South  Carolina,  ii  98.] 

On  every  hand  breaches  of  trust^and  violations  of 
commercial  honor  were  committed  under  the  stress  of  a 
terrible  temptation,  even,  and  perhaps  especially,  by 
those  who  had  been  most  honored  and  trusted.  In  the 
language  of  Mr.  Justice  Story,  the  tender  and  maximum 
laws  "entailed  the  most  enormous  evils  on  the  country, 
and  introduced  a  system  of  fraud,  chicanery  and  profli- 
gacy which  destroyed  all  private  confidence  and  all 
industry  and  enterprise." 

"Time  and  industry,"  writes  Dr.  Ramsay,  "soon  re- 
paired the  losses  of  property  which  the  citizens  sus- 
tained during  the  war,  but  both  for  a  long  time  failed 
in  effacing  the  taint  which  was  then  communicated  to 
their  principles." 

It  was  the  experience  here  recited  which  impressed 
our  fathers  with  their  horror  of  paper  money,  and 
which  led  to  a  prohibition  of  its  issue  by  the  States, 
under  the  Constitution.1 

Says  Mr.  Madison  in  the  "Federalist":  "The  extension 
of  the  prohibition  to  bills  of  credit  must  give  pleasure  to 
every  citizen  in  proportion  to  his  love  of  justice,  and 
his  knowledge  of  the  true  springs  of  public  prosperity. 
The  loss  which  America  has  sustained  since  the  peace 
[1783]  from  the  pestilent  effects  of  paper  money  on  the 
necessary  confidence  between  man  and  man;  on  the 
necessary  confidence  in  the  public  councils  ;  on  the  in- 

1  In  the  interval  between  the  close  of  the  war  and  the  adoption  of 
the  constitution,  several  States  fell  back  upon  paper  money.  Ehode 
Island,  which  had  been  the  worst  offender  as  a  colony,  maintained  the 
same  reputation  as  a  State. 


REVOL  UTIONAR  Y  PAPER.  335 

dustry  and  morals  of  the  people,  and  on  the  character 
of  republican  government,  constitutes  an  enormous  debt 
against  the  States  chargeable  with  this  ill-advised  meas- 


CHAPTEK  XYI. 

ILLUSTRATIONS  OF  INCONVERTIBLE  PAPER  MONEY.      REVOLU- 
TIONARY FRANCE:  ENGLAND  UNDER  THE  RESTRICTION. 

THE  experience  of  France  in  the  matter  of  paper  mon- 
ey is  most  instructive.  Our  space  will  only  serve  to 
trace  the  course  of  the  revolutionary  issues. 

The  financial  embarrassments  of  the  government  in 
1789  were  extreme.  Many  taxes  had  ceased  to  be  pro- 
ductive; the  confiscated  estates  not  only  yielded  no 
revenue  but  caused  a  large  expense,  and,  as  a  measure 
of  resource,  the  finance  committee  of  the  Assembly  re- 
ported in  favor  of  issues  based  upon  the  confiscated 
lands.1  But  the  bitter  experience  of  France  through 
the  Mississippi  schemes  of  John  Law,  1719-21,  made 
the  Assembly  and  the  nation  hesitate.  Dr.  Ramsay 
notes  that  the  debates  in  the  South  Carolina  Legislature 
over  the  paper  money  of  1736  were  not  alluded  to  in 
the  discussions  concerning  the  revolutionary  issues  forty 
years  later.  But  the  lapse  of  seventy  years  had  not 
effaced  the  recollections  of  the  miseries  of  France  under 
the  Regent. 

Necker,  the  Minister,  stood  firm  in  his  opposition  to 
the  issue  of  paper  money,  even  as  a  measure  of  resource ; 

1  "L'ide*e  des  assignats  remonte  &  1787." — [J.  Gamier,  Traite*  de 
Finances,  p.  408.] 


THE  FRENCH  ASSIGNAT&  337 

but  the  steady  pressure  of  fiscal  exigencies,  together 
with  the  influence  of  the  fervid  orators  of  the  Assembly, 
gained  a  continually  increasing  support  to  the  proposi- 
tion of  the  committee.  Nor  were  there  wanting  those 
who  argued  that  the  change  of  times  and  circumstances 
had  altered  the  conditions  of  a  paper  issue  so  far  as  to 
make  that  safe  and  beneficial  under  the  republic  which, 
under  the  Regent,  had  spread  misery  and  disaster  over 
France.  "  Paper  money,"  argued  Martineau,  before  the 
Assembly,  "  paper  money  under  a  despotism  is  danger- 
ous. It  favors  corruption:  but,  in  a  nation  constitu- 
tionally governed,  which  itself  takes  care  of  its  own 
notes,  which  determines  their  number  and  their  use, 
that  danger  no  longer  exists." 

"It  was  constantly  urged,  and  with  a  great  show  of 
force,"  says  President  White,  "that,  if  any  nation  could 
safely  issue  paper  money,  France  was  now  that  nation ; 
that  she  was  fully  warned  by  a  severe  experience  ; 
that  she  was  now  a  constitutional  government,  con- 
trolled by  an  enlightened,  patriotic  people;  not,  as  in 
the  days  of  the  former  issue  of  paper  money,  an  abso- 
lute monarchy  controlled  by  politicians  and  advent- 
urers ;  that  she  was  able  to  secure  every  franc  of  her 
paper  money  by  a  virtual  mortgage  of  a  landed  domain 
of  vastly  greater  value  than  the  entire  issue ;  that,  with 
men  like  Bailly,  Mirabeau,  and  Necker  at  her  head,  she 
could  not  commit  the  financial  mistakes  and  crimes 
from  which  France  had  suffered  when  at  the  head  stood 
John  Law,  and  the  Regent,  and  Cardinal  Dubois."1 

Surely  there  is  something  of  a  family  resemblance  be- 
tween these  arguments  and  the  pleas  we  have  heard  in 
the  United  States  during  the  last  sixteen  years.  Pain- 

1  Paper  Money  Inflation  in  France. 

29 


338  MONEY. 

fully  instructive  it  is  to  note  how  feeble  a  subterfuge 
suffices  to  break  the  force  of  political  experience,  under 
the  temptations  of  immediate  interest  or  the  stress  of 
rising  passion. 

But,  while  the  issue  of  paper  baseTd  on  the  public  do- 
main was  urged  as  a  measure  of  resource,  and  with 
much  artful  apology  for  the  confessed  violation  of  eco- 
nomical principles,  the  leaders  of  the  Assembly  were 
secretly  actuated  by  a  political  purpose,  viz.,  by  widely 
distributing  the  titles  to  the  confiscated  lands  (for  such 
the  paper  money  in  effect  was)  to  commit  the  thrifty 
middle  class  of  France  to  the  principles  and  measures 
of  the  revolution.1  In  a  recent  review  of  President 
White's  pamphlet,  just  quoted,  Mr.  Dillaye  has  sought 
to  show  that  it  was  the  political  vice  of  the  situation, 
the  revolutionary  and  sacrilegious  origin  of  the  title  to 
the  domain  pledged  for  the  payment  of  the  paper,  and 
not  any  economical  vice  in  the  paper  itself,  as  a  form  of 
money,  which  was  mainly  concerned  in  the  subsequent 
depreciation  and  discredit  of  the  assignats. 

Oratory,  the  force  of  fiscal  necessities,  the  half-con- 
fessed political  design,  prevailed  at  last  over  the  warn- 
ings of  experience ;  and  a  decree  passed  the  Assembly 
authorizing  an  issue  of  notes  to  the  value  of  four  hun- 
dred million  francs,  on  the  security  of  the  public  lands. 
To  emphasize  this  security  the  title  of  assignats  was  ap- 
plied to  the  paper.  This  issue  also  bore  interest  and 


1  This  reason  was  boldly  avowed  by  Mirabeau :  "  Partout  ou  se 
placera  un  assignat-monnaie,  la"  surement  reposera  avec  lui  un  vosu 
secret  pour  le  credit  des  assignats,  un  desir  de  leur  solidite ;  '.  .  . 
partout  ou  se  trouvera  un  porteur  d' assignats,  vous  compterez  un 
de"fenseur  necessaire  de  vos  mesures,  un  cre*ancier  interessd  &  vos 
succes." 


THE  FRENCH  ASSIGNA TS.  339 

purported  to  be  payable  at  sight,  though  none  in  fact 
were  ever  paid.1 

Mirabeau,  who  had  declared  paper  money  to  be  the 
nursery  of  tyranny,  corruption  and  delusion,  a  veritable 
orgy  of  authority  in  delirium,  now  threw  himself  with 
all  the  force  of  his  passionate  nature  into  the  contest  on 
the  side  of  the  assignats.  It  is  in  vain,  he  declared,  to 
assimilate  assignats,  secured  on  the  solid  basis  of  these 
domains,  to  an  ordinary  paper  money  having  forced  cir- 
culation. They  represent  real  property,  the  most  secure 
of  all  possessions,  the  soil  on  which  we  tread.2 

The  issue  was  made ;  the  assignats  went  into  circula- 
tion ;  and  soon  came  the  inevitable  demand  for  more. 
Now  appeared,  as  subsequently  in  the  case  of  the  Unit- 
ed States  legal  tenders  in  1862,  that  the  real  battle  had 
been  made  over  the  first  emission.  Talleyrand,  indeed, 
who  had  advocated  the  former,  opposed  the  later  issue, 
and  with  his  accustomed  sagacity  struck  the  vital  point 
of  the  controversy :  You  can,  he  said,  arrange  it  so 
that  the  people  shall  be  forced  to  take  a  thousand  francs 
in  paper  for  a  thousand  francs  in  specie ;  but  you  never 
can  arrange  it  so  that  the  people  shall  be  obliged  to 
give  a  thousand  francs  in  specie  for  a  thousand  francs 
in  paper.  In  that  fact  is  imbedded  the  entire  question, 
and  on  account  of  that  fact  the  whole  system  fails.3 
But  Talleyrand  was  to  learn  that  the  genius  he  had 
aided  to  invoke  was  not  to  be  conjured  by  either 
phrases  or  ideas.  Keeker,  too,  still  prophesied  of  evil ; 
but  the  spirit  of  the  Assembly  had  risen  with  the  first 
emission,  which  no  manifest  evils  had  followed,  and  for 
a  time  the  ghost  of  John  Law  was  laid. 

1  J.  Gamier,  Traite  de  Finances,  p.  409. 

a  White,  Paper  Money  Inflation  in  France. 

8  White,  p.  21. 


340  MONEY. 

The  advocates  of  the  assignats  took  a  bold  and  ag- 
gressive tone.  Mirabeau  declared  that  the  precious 
metals  were  at  the  best  employed  only  in  the  secondary 
arts.  The  paper  money  proposed  was  to  represent  the 
first  and  most  real  property,  the  sole^source  of  produc- 
tion, the  land  itself.  "Paper  money,  we  are  told,  will 
become  superabundant.  Of  what  paper  do  you  speak? 
If  of  a  paper  without  a  solid  basis,  undoubtedly ;  if  of 
one  based  on  the  firm  foundation  of  landed  property, 
never.  .  .  .  There  cannot  be  a  greater  error  than 
the  fear,  so  generally  prevalent,  as  to  the  overissue  of 
assignats.  It  is  thus  alone  you  will  clear  off  your  debts, 
pay  your  troops,  advance  the  revolution.  Re-absorbed 
progressively  in  ilie  purchase  of  the  national  domains,  this 
paper  money  can  never  become  redundant,  any  more  than 
the  humidity  of  the  atmosphere  can  become  excessive, 
which  descends  in  rills,  finds  the  river,  and  is  at  length 
lost  in  the  mighty  ocean." 

The  decree  for  a  further  issue  of  eight  hundred  mil- 
lions passed,  September,  1790.  Though  the  opponents 
of  the  issue  had  lost  heart  and  voice,  they  still  polled 
423  votes  against  508.  To  conciliate  a  minority  still  so 
large,  contraction  was  provided  for  by  requiring  that 
the  paper  when  paid  into  the  Treasury  should  be  burn- 
ed, and  the  decree  contained  a  solemn  declaration  that 
in  no  case  should  the  amount  exceed  twelve  hundred 
millions.  June  19,  1791,  the  Assembly,  against  feeble 
resistance,  violated  this  pledge  and  authorized  a  further 
issue  of  six  hundred  millions. 

Under  the  operation  of  Gresham's  Law,1  specie  now 
began  to  disappear  from  circulation.  In  vain  were  those 
who  hoarded  coin  denounced  as  enemies  of  liberty.  The 

1  See  p.  193. 


THE  FRENCH  ASSIGNA TS.  341 

revolutionary  government  could  confiscate  estates,  but, 
as  we  have  seen,  was  powerless  to  maintain  their  former 
value.  It  could  issue  assignats,  and  make  them  legal 
tender ;  but,  as  Talleyrand  had  warned  the  Assembly, 
while  it  could  force  a  man  to  receive  a  thousand  francs 
in  paper  for  a  thousand  francs  which  he  had  lent  in 
specie,  it  could  not  oblige  him  to  give  a  thousand  francs 
of  specie  still  in  his  possession  for  a  thousand  francs,  or 
ten  thousand  francs,  in  paper,  unless  it  was  for  his  in- 
terest to  do  so. 

But  the  statesmen  and  journalists  of  France  would  not 
even  acknowledge  that  it  was  the  prompting  of  self-in- 
terest which  detained  the  specie  from  circulation  and 
made  it  flow  out  of  the  kingdom.  It  was  the  work  of 
the  enemies  of  France,  of  English  and  Bourbon  emis- 
saries, seeking  the  overthrow  of  liberty,  which  produced 
the  increasing  discredit  of  the  paper  money  and  the 
growing  scarcity  of  gold  and  silver. 

And  now  came  the  collapse  of  French  industry. 
"  What  the  bigotry  of  Louis  XIY  and  the  shiftlessness 
of  Louis  XV  could  not  do  in  nearly  a  century,  was  ac- 
complished by  this  tampering  with  the  currency  in  a  few 
months.  Everything  that  tariffs  and  custom-houses 
could  do  was  done.  Still  the  great  manufactories  of 
Normandy  were  closed ;  those  of  the  rest  of  the  kingdom 
speedily  followed,  and  vast  numbers  of  workmen,  in  all 
parts  of  the  country,  were  thrown  out  of  employment. 
In  the  spring  of  1791  no  one  knew  whether  a 
piece  of  paper  money,  representing  100  francs,  would,  a 
month  later,  have  a  purchasing  power  of  100  francs,  or 
90  francs,  or  80,  or  60.  The  result  was  that  capitalists 
declined  to  embark  their  means  in  business.  Enterprise 
received  a  mortal  blow.  Demand  for  labor  was  still 
further  diminished.  The  business  of  France  dwindled 


342  MONEY. 

into  a  mere  living  from  hand  to  mouth.  This  state  of 
things,  too,  while  it  bore  heavily  against  the  interests  of 
the  moneyed  classes,  was  still  more  ruinous  to  those  in 
more  moderate,  and  most  of  all  to  those  in  straitened, 
circumstances.  With  the  masses  of  the  people  the  pur- 
chase of  every  article  of  supply  became  a  speculation,  a 
speculation  in  which  the  professional  speculator  had  an 
immense  advantage  over  the  buyer.  Says  the  most 
brilliant  of  apologists  for  French  Eevolutionary  states- 
manship, '  Commerce  was  dead,  betting  took  its  place.' " l 
Soon  we  observe  the  spectacle,  familiar  in  the  colo- 
nial assemblies  of  America,  of  the  debtor  class  invad- 
ing the  legislature  with  their  impudent  demand  for  fresh 
issues,  the  further  to  scale  down  debts.  A  new  issue  was 
made  of  three  hundred  millions.  To  appease  the  op- 
position of  the  minority,  to  quiet  the  apprehensions  of 
the  people  and  to  put  a  stop  to  the  depreciation,  it  was 
declared  that  the  actual  circulation  should  never  be  al- 
lowed to  exceed  sixteen  hundred  millions.  "  What  this 
promise  was  worth,"  says  President  White,  "may  be 
judged  from  the  fact  that,  not  only  had  the  declaration 
made  hardly  a  year  before,  limiting  the  amount  in  cir- 
culation to  twelve  hundred  millions,  been  violated ;  but 
the  declaration  made  hardly  a  month  before,  in  which 
the  Assembly  had  as  solemnly  limited  the  amount  in 
circulation  to  fourteen  hundred  millions,  had  also  been 
repudiated."  In  a  word  the  pledge  of  the  Assembly  had 
become  worth  just  as  much  as  a  drunkard's  promises, 
and  no  more.  In  February,  1792,  assignats  had  been 
more  than  30  per  cent,  below  par.  During  the  spring 
and  summer  came  two  more  issues  of  three  hundred  mil- 
lions each.  In  December  an  official  statement  was  put 
forth  that  thirty-four  hundred  millions  had  been  issued, 

1  White,  pp.  30-4. 


THE  FRENCH  ASSIGNATS.  343 

of  which  six  hundred  had  been  burned,  leaving  twenty- 
eight  hundred  millions  in  circulation. 

And  here  appeared  a  fresh  basis  for  issues.  The  pa- 
per money  had  been  put  forth  on  the  security  of  the 
confiscated  estates  of  the  Church.  The  seizure  of 
the  lands  of  the  emigrant  nobles,  as  the  enemies  of 
France,  offered  a  larger  ground  for  these  issues,  which 
Mirabeau  had  assured  the  nation  could  never  become 
excessive.  Still,  as  the  assignats  poured  from  the  treas- 
ury in  increasing  volume,  the  cry  of  the  scarcity  of  the 
circulating  medium  grew  louder.  Soon  that  cry  gave 
way  to  another,  not  unfamiliar  in  the  'same  connection. 
"Bread  or  Blood"  riots  took  place  in  the  streets;  stores 
and  shops  were  plundered  by  famished  wretches ;  the 
government  was  driven  by  sheer  stress  of  violence  to 
feed  the  capital.1  The  government  service  itself  was 
scarcely  to  be  maintained,  for  the  wholesale  resignations 
of  officials,  driven  out  by  the  depreciation  of  the  money 
in  which  their  salaries  were  paid. 

In  logical  order  came  the  next  resort  of  baffled  power. 
Maximum  laws  were  enacted,  as  has  been  related  of 
the  American  Revolutionary  government,  with  only  the 
effect  still  further  to  diminish  supplies  of  food  and  fuel, 
as  producers  withheld  the  goods  for  which  they  were 
forbidden  to  take  a  price  which  would  enable  them  to 
replace  their  stock.  The  inhabitants  of  the  cities  of 
France  were  put  on  an  allowance  of  food,  like  sailors 
drifting  at  sea  in  open  boats.  Still  the  depreciation  of 
this  money,  based  unshakably  on  "the  only  real  prop- 
erty, the  sole  source  of  production,  the  soil  on  which 
we  tread,"  went  on.  Against  the  Premium  on  Silver, 
the  revolutionary  government  which  had  struck  down 

"  To  supply  five  armies  and  a  vast  Capital,  with  the  mere  power 
of  issuing  assignats." — [Thiers,  The  Consulate  and  the  Empire.] 


344  MONEY. 

Church  and  State,  which  had  confiscated  one-third  and 
more  of  the  real  property  of  France,  and  was  strong 
enough  to  send  every  morning  tumbril-loads  of  freshly 
convicted  Frenchmen — peasants,  priests,  and  nobles — 
to  the  guillotine,  directed  its  utmost  force.  By  law  of 
April  11, 1793,  the  purchase  of  specie  was  forbidden  un- 
der penalty  of  six  years  in  irons.  In  August,  a  law 
prohibited  the  sale  of  assignats  below  their  nominal 
value,  on  penalty  of  twenty  years  in  chains.  Soon  came 
another  law,  punishing  with  death  investments  of  capi- 
tal in  foreign  countries. 

Towards  the  end  of  1794  there  had  been  issued  7,000 
millions  in  assignats;  by  May,  1795,  10,000  millions; 
by  the  end  of  July,  16,000  millions ;  by  the  beginning  of 
1796,  45,000  millions,  of  which  36,000  millions  were  in 
actual  circulation.1 

1  White,  pp.  53-4. 

"  Sans  compter  le  papier-monnaie  que  les  insurges  de  la  Vendee,  et 
de  la  Bretagne  mirent  en  circulation." — [Gamier.] 

Mr.  Dillaye,  in  a  recent  pamphlet,  has  attacked  this  statement, 
which  is  found  in  a  hundred  works  of  reputation.  His  sole  authority 
appears  to  be  Louis  Blanc.  I  do  not  profess  to  have  investigated 
the  subject;  but  nothing  which  Mr.  Dillaye  adduces  strikes  me  aa 
sufficient  to  throw  doubt  on  the  accepted  figures  of  the  issues  for 
1795-6. 

M.  Joseph  Gamier,  in  his  "  Traite  de  Finances  "  [p.  408],  gives  the 
following  itemized  statement  from  a  work  of  M.  Ramel,  former 
Minister  of  Finance :  The  numbers  represent  millions  of  francs. 

Assignats  crees  par  1'assemblee  constituante  (lois  des  21  Dec.,  1789, 
17  Avril,  1790,  19  Juin,  1790),        -  1,800 

Assignats  crees  par  1'assemblee  legislative,       -  900 

"     directement  par  la  Convention,  -        -         7,278 


1    par  les  Comites  autorises,  } 
"  "    par  le  Directoire,  ) 


33,603 


45,581 
M.  Bresson  gives  a  total  differing  by  only  two  or  three  millions. 


THE  FRENCH  ASSIGNATS.  345 

M.  Bresson  gives  the  following  table  of  depreciation : l 
24  livres  in  coin  were  worth  in  assignats 
April  1,  1795,          238        October  1,  1795,       1,205 
May   "      "  299        Nov.        "      "  2,588 

June  "      "  439        Dec.        "      "  3,575 

July    "      "  808        January  1,  1796,       4,658 

Aug.  "      "  807        Feb.        "      "          5,337 

Sept.  "      "  1,101 

At  the  last,  "an  assignat  professing  to  be  worth  100 
francs  was  commonly  exchanged  for  5  sous  6  deniers : 
in  other  words,  a  paper  note  professing  to  be  worth  <£4 
sterling  passed  current  for  less  than  3d.  in  money."2 

The  downward  course  of  the  assignats  had  unques- 
tionably been  accelerated  by  the  extensive  counterfeit- 
ing of  the  paper  in  Belgium,  Switzerland,  and  England. 
There  is  reason  to  believe  that  the  government  of  the 
latter  country  directly  encouraged  this  discreditable  en- 
terprise, as  it  had  done  the  counterfeiting  of  the  Conti- 
nental money  during  the  American  Kevolution.  So 
completely  had  the  country,  to  all  appearances,  been 
drained  of  its  specie,  that,  when  General  Bonaparte  set 
out,  early  in  1796,  to  take  command  in  Italy,  he  carried 
with  him  in  his  carriage  the  "military  chest"  of  his 
army,  containing  2,000  gold  louis,  which  were  all  the 
authorities  could  place  at  his  disposal  to  carry  on  war 
in  a  foreign  land.  M.  Bresson  says  there  is  still  extant 
an  order-of-the-day,  signed  by  Berthier,  announcing 
that  each  general  officer  would  receive  four  louis  to  fit 
him  out  for  the  campaign. 

Now  appears  that  last  resort  of  finance  under  a  de- 
preciating paper :  an  issue  under  new  names  and  new 

1  Hist.  Financi£re  de  la  France,  ii,  225. 
2  Twiss,  Progress  of  Political  Economy,  p.  263. 

29* 


346  MONEY. 

devices.  We  have  seen  this  in  the  history  of  Connecti- 
cut, giving  rise  to  the  distinction  of  "new-tenor"  and 
"old-tenor";  and  we  have  seen  that  much  importance 
was  attached  in  Rhode  Island  to  the  consideration  that 
the  new  paper  should  be  issued  on  plates  virgin  of  pre- 
vious impressions.  In  Massachusetts,  by  1747,  this 
financial  expedient  had  been  so  often  resorted  to,  that 
the  paper  money  of  the  colony  had  to  be  distinguished 
as  old-tenor,  middle-tenor,  and  new-tenor,  the  latter 
being  further  divided  as  new-tenor-first  and  new-tenor- 
second.1 

In  the  desperate  extremity  to  which  the  revolutionary 
government  was  reduced  in  1796,  it  had  resort  to  a  sim- 
ilar expedient.  Territorial  Mandates  were  ordered  to 
be  issued  for  assignats  at  30  : 1,  the  mandates  to  be  di- 
rectly exchangeable  for  land,  at  the  will  of  the  holder,  on 
demand.  Eight  hundred  millions  were  to  be  used  in 
canceling  the  assignats ;  the  remainder  to  be  applied  to 
the  exigencies  of  the  government.  For  a  brief  time 
after  the  first  limited  emission,  the  mandates  rose  as 
high  as  80  per  cent,  of  their  nominal  value ;  but  soon 
additional  issues  sent  them  down  even  more  rapidly 
than  the  assignats  had  fallen.2  Soon  they  were  worth 
but  ToKfo  part  of  their  nominal  value.  As  one  mandate 
was  worth  30  assignats,  remarks  Mr.  McLeod,  the  lat- 
ter might  be  reckoned  at  TOW o\ 

This  course  was  run  and  finished 3  before  the  1st  July, 
1796,  at  which  date  the  whole  system  was  demolished. 

1  Sumner,  p.  31. 

3  "  Frappe  de  mort  des  sa  naissance." — [Bresson.] 
3  Bresson  [ii,  222-3]  states  that  a  third  kind  of  paper  called  Re- 
scriptions  metalliques,  was  created  by  the  Directory;  but  that  the 
career  of  this  paper  was  so  brief  that  there  was  not  even  time  to  en- 
grave the  plates  for  it. 


ENGLISH  BANK  RESTRICTION.  347 

A  new  decree  authorized  every  man  to  transact  business 
in  the  money  and  on  the  terms  he  chose.  Mandates 
were  only  to  be  taken  at  their  market  value,  which  was 
published  every  day  from  the  Treasury. 

"No  sooner,"  says  Mr.  McLeod,1  "was  this  great  blow 
struck  at  the  paper  currency,  of  making  it  pass  at  its 
current  value,  than  specie  immediately  re-appeared  in 
circulation.2  Immense  hoards  came  forth  from  their 
hiding  places;  goods  and  commodities  of  all  sorts  being 
very  cheap,  from  the  anxiety  of  their  owners  to  possess 
money,  caused  immense  sums  to  be  imported  from  for- 
eign countries.  The  exchanges  immediately  turned  in 
favor  of  France,  and  in  a  short  time  a  metallic  currency 
was  permanently  restored.  And  during  all  the  terrific 
wars  of  Napoleon  the  metallic  standard  was  always  main" 
tamed  at  full  value." 

ENGLAND  UNDER  THE  RESTRICTION. 

The  sentence  last  quoted  from  Mr.  McLeod,  con- 
nects the  experience  of  France,  in  the  matter  of  Incon- 
vertible Paper  Money,  with  that  of  England. 

In  1793  the  two  countries  became  at  war.  Besides 
the  coin  of  the  realm,  which  was  variously  estimated 
from  22.5  millions  [Tooke]  upwards,  the  money  of  Great 
Britain,  excluding  Ireland,  consisted  of  notes  issued 
by  the  Bank  of  England,  by  the  country  banks — some 
hundreds  in  number — not,  as  they  largely  are  now, 
joint-stock  banks,  but  often  small  traders,  and  by  the 
Scotch  banks,  few  and  strong. 

1  Economical  Philosophy,  ii,  353. 

2  M.  Thiers  states  that  considerable  amounts  of  specie  had  ap- 
peared  in  circulation,   especially  Spanish  piastres   in  the  southern 
provinces,  even  during  the  currency  of  the  mandates. 


348  MONEY. 

The  Lords'  Committee  of  1819  estimated  the  circula- 
tion of  the  kingdom  as  follows  : 

Coin,  -       £25,000,000 

.Bank  of  England,  -     10,500,000 

Country  Notes  and  Scottish,    -  7,000,000 

Total,  ^     £42,500,000 

The  war  continued  for  three  years  without  the  sus- 
pension of  specie  payments,  or,  apparently,  any  serious 
apprehensions  of  such  a  result.  At  least,  suspension 
was  not  regarded  as  a  necessary  concomitant  of  a  state 
of  war.  In  1796,  however,  the  government  borrowed 
heavily  of  the  Bank  of  England1  for  war  expenses  ;  and, 
to  the  great  dissatisfaction  of  the  directors,  postponed 
or  refused  the  promised  repayments.  The  Bank,  re- 
duced to  extremity,  began  to  contract  its  circulation. 
At  this  juncture  came  a  rumor  of  French  invasion,  and 
the  news  of  an  actual,  though,  as  it  turned  out,  acci- 
dental appearance  of  the  enemy  off  the  coast.  A  run  on 
the  country  banks  ensued,  which  caused  them  to  make 
heavy  demands  on  the  Bank  of  England.  So  far,  the 
narrative  belongs  to  the  history  of  Convertible  Paper 
Money. 

By  the  27th  of  February  the  specie  reserve  of  the 
Bank  was  reduced  to  £1,000,000,  when  an  Order  in 
Council  forbade  the  Bank  to  pay  further  in  specie  till 
the  will  of  Parliament  should  be  made  known.  In  May 
Parliament  passed  an  act  restraining  the  Bank  from 
specie  payments,2  the  Bank  being  placed  in  the  attitude 

1  "  It  was  owing  to  the  too  intimate  connection  between  the  Bank 
and  Government  that  the  restriction  became  necessary;  it  is  to  that 
cause,  too,  that  we  owe  its  continuance." — [Ricardo,  High  Price  of 
Bullion.] 

2  The  bank  could  only  issue  cash  for  sums  under  20  shillings.     But 
if  any  person  lodged  specie  in  the  bank,  he  might  be  repaid  to  the 
extent  of  three-quarters  the  sum  lodged,  if  it  exceeded  £500. 


ENGLISH  BANK  RESTRICTION.  349 

of  desiring  to  pay  specie  but  not  being  permitted ;  and 
this  so-called  Restriction  was  continued  from  time  to 
time  by  various  acts,  the  Bank  in  the  earlier  portions  of 
the  period  professing  its  readiness  to  resume  specie  pay- 
ments, should  the  public  interest  allow. 

Two  questions  arise  respecting  the  suspension.  Was 
it  inevitable,  when  and  as  it  occurred?  Would  it  event- 
ually have  become  so,  had  it  been  for  a  time  averted  ? 

Upon  the  first  point  we  have  the  high  authority  of 
Mr.  Tooke  and  Mr.  Ricardo,  in  giving  a  negative  answer. 

Mr.  Tooke  says :  "I  do  not  think  that  the  suspension 
of  cash  payments  was,  at  that  time,  of  absolute  neces- 
sity. I  have  never  entertained  the  least  question  but 
that,  if  the  Bank  had  continued  to  pay  and  to  suppress 
its  notes  as  it  issued  treasure,  the  crisis  would  have 
been  got  over." 

Mr.  Eicardo :  "If  the  Bank  had  continued  paying  in 
cash,  probably  the  panic  would  have  subsided  before 
the  coin  had  been  exhausted." 

On  the  second  question  the  weight  of  opinion,  outside 
the  professed  economists,  inclines  perhaps  to  the  ulti- 
mate necessity  of  suspending  cash  payments  during  a 
severe  and  protracted  war.  This  way  of  looking  at  the 
subject  has  probably  been  strongly  confirmed  in  the 
mind  of  the  present  generation  by  the  easy  collapse  of 
the  United  States  in  1862  and  of  France  in  1870. 

Sir  Archibald  Alison  has  left  the  strongest  assertions 
of  the  necessity  of  the  act  of  1797.  "No  one  can  doubt 
that  it  was  in  the  great  extension  of  the  currency,  which 
took  place  from  1797  to  1810,  that  the  resources  were 
mainly  found  which  provided  both  for  the  long-con- 
tinued efforts  with  which  the  war  was  attended,  and  the 
gigantic  expenditure  of  its  later  years. — [History  of  Eu- 
rope.] 

30 


350  MONEY. 

"Yain,"  he  remarks  elsewhere,  "would  have  been 
the  numerous  advantages,  physical  and  political,  which 
Great  Britain  enjoyed  during  the  contest,  if  a  fortunate 
combination  of  circumstances,  joined  to  uncommon  wis- 
dom on  the  part  of  its  government,  had  not  established 
a  system  of  currency  in  the  heart  of  the  empire  adequate 
to  the  wants  of  its  immense  dependencies,  capable  of 
expansion  at  will,  according  to  the  necessities  of  the 
times,  and  not  liable  to  be  drawn  off  at  particular  peri- 
ods by  the  balances  of  trade  or  the  military  necessities 
of  foreign  states.  .  .  .  The  vast  and  imperious  de- 
mand for  the  precious  metals,  and  especially  gold,  for 
the  use  and  maintenance  of  the  immense  armies  con- 
tending on  the  Continent,  of  necessity  drained  away 
nearly  the  whole  of  the  precious  metals  from  the  coun- 
try at  the  very  time  when  they  were  most  required  for 
the  support  of  domestic  credit,  or  the  cost  of  warlike 
establishments.  When  such  a  drain  for  specie  set  in 
from  foreign  parts,  certain  ruin  must  have  ensued  if  the 
empire  had  possessed  no  resources  within  itself  to  sup- 
ply the  place  of  the  precious  metals  which  were  taken 
away." 

On  the  other  hand,  Prof.  Sumner  has  said  respecting 
the  alleged  necessity  for  suspension:  "Political  Econ- 
omy emphatically  declares  that  it  never  can  be  neces- 
sary."— [Hist.  Am.  Currency,  p.  202] ;  and  Prof.  New- 
comb,  in  his  "Financial  History  of  the  United  States," 
1861-5,  has  made  a  very  strong  and  suggestive  argu- 
ment on  the  same  side.1  Nor  can  we  put  out  of  sight 

1  "  The  military  power  of  a  nation  is  measured  by  the  amount  of 

industry  which  it  can  divert  into  the  channels  of  war."     .     .     . 

That  amount  "is  not  increased  by  the  possession  of  any  sort  of 

money."     ["The  latter  only  facilitates  the  diversion  by  making  it 

"easier  to  measure  each  man's  share  of  the  public  burden."]     .     .     . 


THE  ENGLISH  RESTRICTION.  351 

the  fact  that  all  the  wars  of  Napoleon  were  conducted, 
on  his  side,  without  the  use  of  paper  money.  Perhaps 
we  may  fairly  say  that  the  question  is  one  of  Finance 
rather  than  of  pure  Political  Economy ;  that  is,  a  ques- 
tion in  which  the  statesman  must  take  counsel  of  the 
economist,  but  always  with  respect  to  distinctly  political 
considerations. 

But  though  England  thus  entered  upon  a  career  of 
inconvertible  paper,  the  prudence  and  firmness  of  the 
Bank  management  during  the  first  eleven  or  twelve 
years  prevented  any  considerable  increase  of  issues  over 
the  amount  of  metallic  money  which  would  have  circulat- 
ed in  the  kingdom.  It  was  indeed  alleged  and  commonly 
believed  between  1797  and  1808,  that  the  notes  of  the 
Bank  were  largely  in  excess.  The  disturbance  of  com- 
mercial relations  and  the  effects  of  war  taxation  had 
produced  such  fluctuations  in  markets,  and  had  carried 
the  prices  of  certain  articles  to  such  an  extravagant 
height,  as  almost  necessarily  to  create  the  belief  referred 
to.  But  in  the  most  memorable  economico-statistical 
investigation  ever  undertaken,  Mr.  Thomas  Tooke  show- 
ed the  opinion  to  be  erroneous.  His  grand  result  was, 
that,  during  the  first  twelve  years  of  the  suspension,  the 
exchanges  were  as  favorable  as  they  had  been  on  an 
average  of  ninety-six  years,  or  of  any  ten  consecutive 
years  preceding  1797. 

In  1809,  however,  appeared  a  wide  divergence  be- 
tween the  mint  price  of  gold1  and  its  market  price  in 

"  It  depends  upon  and  is  measured  by  what  the  nation  is  able  to  pro- 
duce over  and  above  what  is  necessary  for  its  subsistence."  .  .  . 
"  Gold  is  a  sinew  of  war  in  no  higher  sense  than  quicksilver  or 
platinum,  or  anything  else  for  which  we  can  obtain  munitions  of  war." 
1  The  attempt  of  Parliament  to  restrain  by  law  the  melting  and 
exportation  of  gold  and  silver  coins,  led  to  an  absurd  complication, 


352  MONEY. 

Bank  of  England  notes.  The  mint  price  of  an  ounce  of 
standard  gold  being  £3  17s.  10yd,  the  market  price  had 
risen  in  1811  to  £4  4s.  6d,  in  1812  to  £4  15s.  Qd.,  in  1813 
to  £5  Is.,  and  in  1814  to  £5  4s. 

The  perturbations  of  exchange  and  of  prices  in  the 
first  years  of  the  century  had  aroused  the  attention  of 
thoughtful  publicists  in  England,  fn  1800  Mr.  Boyd 
addressed  a  letter  to  Mr.  Pitt,  ascribing  the  whole  of 
the  fall  in  the  exchanges  and  the  rise  in  the  price  of 
provisions  to  excessive  issues  of  the  Bank  of  England. 
This  drew  forth  a  reply  from  Sir  Francis  Baring.  In 
1802  Mr.  Henry  Thornton  published  his  treatise  on 
"Paper  Credit,"  from  which  extracts  have  already  been 
made.  In  1803  Lord  King  published  his  "Thoughts  on 
the  Bank  of  England  Kestriction,"  a  work  of  which  Prof. 
Senior  wrote  in  1846 :  "It  contains  so  full  and,  in  the 
main,  so  true  an  exposition  of  the  theory  of  paper  mon- 
ey, that,  after  more  than  forty  years  of  discussion,  there 
is  little  to  add  to  it  or  to  correct."  The  doctrine  known 
as  "Lord  King's  doctrine"  is  thus  stated  by  Mr.  McLeod 
[Economical  Philosophy,  ii,  303]  : 

"The  rise  of  the  paper  price  of  bullion  above  the 
mint  price,  and  a  continuous  state  of  the  foreign  ex- 
changes below  the  limits  of  the  real  exchange,  are  the 
proof  and  the  measure  of  the  depreciation  of  an  incon- 
vertible paper  currency." 

In  1809,  the  divergence  between  the  mint  and  the 

which  is  thus  stated  by  Mr.  Huskisson  in  his  pamphlet  on  the  "  De- 
preciation of  the  Currency  "  : 

"  The  state  of  the  law,  therefore,  is  this :  The  possessor  of  a  heavy 
guinea,  which  is  intrinsically  worth  about  24s.  Qd.  in  bank  paper, 
who  should  exchange  it  for  more  than  21s.  of  that  paper,  would  be 
liable  to  fine  and  imprisonment.  The  more  fortunate  possessor  of  a 
light  guinea  is  entitled  by  law  to  exchange  it  for  what  it  will  fetch, 
which  would  he  about  24s.  3d." 


THE  ENGLISH  RESTRICTION.  353 

market  price  of  bullion  rapidly  increasing,  Mr.  David 
Kicardo  published  his  memorable  pamphlet  on  the 
"High  Price  of  Bullion."  The  doctrines  of  this  pam- 
phlet being  attacked  by  Mr.  Charles  Bosanquet,  Mr.  Ei- 
cardo  published  a  reply,  which  remains  the  masterpiece 
of  this  great  economist. 

In  1810  the  subject  was  brought  to  the  attention  of 
Parliament,  and  a  committee  known  as  the  Bullion 
Committee  was  appointed.  Mr.  Horner  was  chairman 
and  Messrs.  Huskisson  and  Thornton  were  among  the 
members.  The  report  was  rendered  in  June,  1810.  The 
doctrines  of  the  report  were  nearly  those  of  Mr.  Eicardo.1 

1  Mr.  Joplin,  in  his  "  Analysis  and  History  of  the  Currency  Ques- 
tion," asserts  that  Mr.  Ricardo  felt  himself  ill-treated,  in  that  credit 
for  his  ideas  was  not  given  him  by  the  Committee.  Mr.  Joplin  goes 
so  far  as  to  invent  the  term  Hornerizing  as  expressive  of  the  borrow- 
ing of  ideas  without  permission  and  without  acknowledgment.  Mr. 
Ricardo  may  have  had  the  feeling  attributed  to  him ;  but  the  charge 
of  seeking  to  build  up  reputation  out  of  other  men's  brains  is  not 
one  which  can  justly  be  brought  against  Francis  Horner.  In  his 
letter  to  J.  A.  Murray,  Mr.  Horner  makes  the  following  frank  ad- 
missions : 

"  I  can  let  you  into  the  secret,  however,  that  the  Report  is  in  truth 
very  clumsily  and  prolixly  drawn,  stating  nothing  but  very  old  doc- 
trines on  the  subject  it  treats  of,  and  stating  them  in  a  more  imper- 
fect form  than  they  have  frequently  appeared  in  before.  It  is  a 
motley  composition  by  Huskisson,  Thornton  and  myself,  each  having 
written  parts,  which  are  tacked  together  without  any  care  to  give 
them  a  uniform  style,  or  a  very  exact  connection.  One  great  merit 
the  Report,  however,  possesses;  that  it  declares  in  very  plain  and 
pointed  terms  both  the  true  doctrine,  and  the  existence  of  a  great 
evil  growing  out  of  the  neglect  of  that  doctrine."  In  a  subsequent 
letter  to  Jeffrey,  July  16,  1810,  he  seems  to  admit  that  the  author- 
ship of  the  doctrines  of  the  Report  should  be  more  publicly  known. 
"  I  will  do  a  short  article  for  you.  this  time,  to  do  justice  to  Mr.  Ri- 
cardo and  Mr.  Mushet,  who  called  the  public  attention  to  this  very 
important  subject  at  the  end  of  last  year." — [ii,  51.] 


354  MONEY. 

The  report  of  the  Bullion  Committee  led  to  a  war  of 
pamphlets  which  is  wholly  without  parallel  in  the  his- 
tory of  economical  literature.1  The  doctrines  of  the  re- 
port were  defended  by  Mr.  Eicardo  and  Mr.  Huskisson. 
They  were  attacked  by  two  schools  of  writers,  who  dif- 
fered among  themselves  almost  as  widely  as  they  differ- 
ed from  the  bullionists.  They  were, 'first,  the  authori- 
ties and  friends  of  the  Bank  of  England  (including  the 
government),  who  denied  the  existence  of  any  increase 
of  circulation ;  or  indeed  that  the  issues  of  the  Bank  re- 
quired any  regulation  not  implied  in  good  banking.  Sec- 
ond, the  advocates  of  paper-money  inflation.  It  is  to 
the  thorough  discussion  of  the  money  question  between 
1809  and  1811  that  we  owe  one  of  the  greatest  advances 
of  economical  science. 

The  practical  recommendation  of  the  Bullion  Com- 
mittee had  been  that  the  Bank  should  be  required  to  re- 
sume cash  payments  within  two  years.  This  provision 
formed  the  last  of  a  series  of  sixteen  resolutions  moved 
by  Mr.  Horner,  in  the  House  of  Commons,  May  6,  1811. 
A  counter-set  of  three  resolutions  was  moved  by  Mr. 
Yansittart,  the  third  being  the  memorable  one,  food  for 
unending  laughter:  "That  the  promissory  notes  of  the 
Bank  of  England  have  hitherto  been,  and  are  at  this 
time  held  to  be,  equivalent  to  the  legal  coin  of  the 
realm."  This  in  the  face  of  the  fact  that  British  gold 
coin  was  selling  at  a  premium  of  nearly  20  per  cent,  in 
Bank  of  England  notes  ! 

The  bullionists  were  beaten,  and  the  House  adopted, 
151  to  75,  Mr.  Yansittart' s  resolutions,  even  to  the  last. 
Against  the  resolution  of  Mr.  Horner  for  speedy  re- 
sumption, the  government  triumphed  180  to  45. 

1  The  fullest  collection  of  Bullion  pamphlets  in  this  country,  so  far 
as  I  am  aware,  is  in  the  valuable  Watkinson  library  of  Hartford. 


THE  ENGLISH  RESTRICTION.  355 

During  this  year  Lord  King  issued  a  circular  to  his 
tenants,  demanding  payment  of  his  rents  in  specie  or 'its 
equivalent.  For  this  act  Lord  King  was  vehemently 
denounced  as  unpatriotic,  and  an  act  was  passed  by 
Parliament,  known  as  Lord  Stanhope's  Act,  making  it 
an  offense  to  buy  or  sell  guineas  at  more  than  their  de- 
nominative value  in  the  notes  of  the  Bank  of  England. 
Lord  King's  object  in  making  this  demand  upon  his  ten- 
ants was  to  bring  about  a  gold  price  and  a  paper  price  for 
rents  and  commodities  within  the  kingdom,  as  a  means 
of  strongly  attracting  public  attention  to  the  fact  of  de- 
preciation, and  securing  a  general  interest  in  the  resump- 
tion of  specie  payments.1 


But  though  the  bullionists  were  beaten  in  the  imme- 
diate parliamentary  struggle,  the  principles  of  the  Re- 
port won  their  way  to  the  general  conviction  of  the 
public  mind  of  England,  and  the  actual  resumption,  ten 
years  later,  was  accomplished  under  their  leadership. 

The  war  closed  in  1815.  The  average  paper  price  of 
gold  which  had  stood  at  £5  4s.  per  ounce  in  1814, 
sank  to  £4  13s.  6d,  where  it  remained  through  1816.2 

1  In  view  of  the  abuse  heaped  upon  Lord  King,  it  is  interesting  to 
find  the  philosopher  Locke,  who  took  so  prominent  a  part  in  the  re- 
form of  the  coinage  in  1696  [see  p.  213],  writing  to  his  friend  Clarke, 
in  May,  1695 :   "  I  shall,  I  think,  in  the  beginning  of  July  have  some 
money  paid  me  in,  and  perhaps  some  sooner.     Pray  tell  me  whether 
I  cannot  refuse  clipped  money ;  for  I  take  it  not  to  be  the  lawful 
coin  of  England,  and  I  know  not  why  I  should  receive  half  the  value 
I  lent,  instead  of  the  whole."— [Fox  Bourne's  Life  of  Locke,  ii,  325.] 

2  This  was  the  year,  it  will  be  remembered,  in  which,  under  Lord 
Liverpool's  leadership,  England  adopted  the  single  gold  standard, 
remitting  silver  to  the  office  of  subsidiary  coin. — [See  p.  225.] 


356  MONEY. 

In  1817  the  premium  encountered  a  further  fall,  until 
for  the  time  there  occurred  what  Mr.  Tooke  called  "a 
spontaneous  re-adjustment  of  the  value  between  gold 
and  paper  to  a  perfect  equality." — [Hist.  Prices,  ii,  60. \\ 

At  this  point  the  directors  of  the  Bank  undertook1 
voluntarily  the  redemption  of  their  one  and  two -pound 
notes,  dated  prior  to  January  1,  1816.  Under  this  offer, 
as  Mr.  Francis  states,1  scarcely  any  demand  was  made  on 
the  Bank  coffers,  the  amount  of  cash  paid  out  for  the  re- 
demption of  these  notes,  held  principally  by  the  poorer 
classes,  not  exceeding  Xl,000,000.  In  October  of  the 
same  year  the  directors,  encouraged  by  the  results  of 
this  partial  experiment,  announced  that  they  would  pay 
gold  for  their  notes  of  all  denominations  issued  prior  to 
January  1,  1817.  From  this  position  the  Bank  was 
obliged  to  recede.  A  demand  for  gold  set  in  which  re- 
sulted in  draining  away  over  £5,000,000,  and,  on  the 
report  of  Mr.  Peel,  the  House,  in  two  nights,  passed  a 
bill  restraining  further  payment. 

Thus,  though  the  vessel  had  drifted  in  to  land,  and 
had  fairly  touched  the  shore,  it  was  borne  away  by  a 
counter-current  and  carried  out  again  to  sea. 

What  was  the  cause  of  the  advance  of  the  gold  pre- 
mium, after  the  partial  resumption  of  1817? 

Mr.  Francis,  adopting  the  Bank  view,  says  the  bull- 
ion operators  stepped  in  as  soon  as  payment  of  large 
notes  was  offered  and  took  off  the  gold.  But  what 
made  it  for  the  interest  of  the  dealers  in  bullion  to  take 
gold  away?  The  exchanges  were  unfavorable.  But 
why,  persist  the  bullionists,  were  the  exchanges  unfa- 
vorable ? 

Prof.  Sumner  thus  summarizes  the  bullionist  argu- 

1  History  of  the  Bank  of  England,  i,  316. 


THE  ENGLISH  RESTRICTION.  357 

ments:  "The  balance  of  imports  and  exports  never  can 
move  the  exchanges  either  above  or  below  par  more 
than  just  enough  to  start  a  movement  of  bullion.  On  a 
specie  system,  any  outflow  of  bullion  would  bring  down 
prices  and  immediately  make  a  remittance  of  goods 
more  profitable  than  one  of  bullion,  and  if  the  exporta- 
tion of  bullion  was  artificially  continued  (as  for  instance 
to  pay  the  expenses  of  a  foreign  war),  it  would  reduce 
prices  until  a  counter-current  would  set  in  and  restore 
the  former  relative  distribution  all  the  world  over.  If 
all  nations  used  specie,  or  even  paper  and  specie  in 
only  due  proportion,  it  would  be  as  impossible  for 
one  nation  to  be  drained  of  specie,  as  for  New  York  har- 
bor to  be  drained  of  water  by  the  tide,  and  on  the  same 
supposition,  it  would  be  as  absurd  for  the  Secretary  of 
the  Treasury  or  a  committee  of  Congress  to  regulate  the 
currency,  as  for  the  same  powers  to  see  to  it  that  New 
York  harbor  gets  its  fair  share  of  water,  on  every  tide. 
.  If,  therefore,  there  is  an  outflow  of  gold, 
serious  and  long  continued,  accompanied  by  an  un- 
favorable exchange,  it  is  a  sign  that  there  is  an  inferior 
currency  behind  the  gold  which  is  displacing  it. 

"  The  surplus  of  imports  of  goods  above  the  exports 
of  goods  is  nothing  but  the  return  payment  for  this  ex- 
port of  gold,  and  is  not  a  cause,  but  a  consequence.  If, 
finally,  we  want  to  turn  this  tide  and  produce  an  influx, 
there  is  only  one  way  to  do  it,  and  that  is  simply  to  re- 
move the  inferior  currency.  As  for  waiting  for  the  bal- 
ance of  trade  to  turn  and  bring  gold  into  a  country 
which  has  a  depreciated  paper  currency,  one  might  as 
well  take  his  stand  at  the  foot  of  a  hill  and  wait  for  it 
to  change  into  a  declivity  before  climbing  it." — [Hist. 
Am.  Currency,  pp.  264-5.] 

This  is  the  familiar  doctrine  of  Bicardo.  I  have  said 
30* 


358  MONET. 

that  the  general  truth  of  the  doctrine  cannot  be  ques- 
tioned, though  some  qualification  of  its  severity  may  at 
times  require  to  be  made  in  application  to  particular 
cases.1 

Consistently  with  the  above  views,  the  bullionists 
should  allege  that  the  re-appearance  of  the  premium  in 
1818  was  due  to  an  increased  issue  oi  bank-notes,  and 
so  indeed  they  do.2  Mr.  Tooke,  however,  declares  that 
the  restoration  of  the  value  of  the  bank-note  during  the 
first  six  months  of  1817  had  coincided  with  an  enlarge- 
ment of  the  Bank  issues,  as  compared  with  any  previous 
period:  he  attributes  the  disturbance  at  the  close  of 
1817  and  throughout  1818  to  the  large  loans  negotiated 
in  England  for  the  French  and  Eussian  governments.— 
[Hist,  of  Prices,  ii,  52 ;  60-1.] 

However  it  came  about,  the  year  1818  brought  a  se- 
vere commercial  crisis  and  numerous  failures  occurred, 
compelling  the  attention  of  Parliament  to  the  subject 
of  the  Restriction.  Each  House  appointed  a  committee 
which  conducted  a  separate  investigation.  Against 
strong  opposition  from  "the  City,"  where  the  effects  of 
an  effort  towards  resumption  were  greatly  dreaded,  and 
in  spite  of  the  remonstrances  of  the  Bank,  the  House  of 
Commons  committee  reported  a  bill  based  on  the  doc- 
trines of  the  Bullion  Eeport  of  1810. 

"This  memorable  bill,"  says  Mr.  Francis,  "provides 
that,  from  the  first  of  February  to  the  first  of  October, 
the  Bank  shall  deliver  on  demand  gold  of  standard  fine- 

1  How,  for  example,  would  Prof.  Sumner  explain  the  recent  influx 
of  gold  into  the  United  States,  which  has  "  a  depreciated  paper  cur- 
rency "  ? 

2  "Adhering  to  the  doctrine  that  the  issues  could  not  affect  the 
exchanges,  it  [the  Bank]  continued  to  expand  the  circulation  \\\\\\Q 
paying  out  gold." — [Sumner,  Hist.  Am.  Currency,  p.  285.] 


THE  ENGLISH  RESTRICTION.  359 

ness,  not  less  than  60  oz.,  in  exchange  for  bank-notes  at 
£4  Is.  per  oz.  From  the  first  of  October,  1820,  to  the  first 
of  October,  1821,  the  same  plan  to  be  adopted ;  but  the 
gold  to  be  at  the  rate  of  £3  19s.  6d  per  oz.  From  the 
first  of  May,  1821,  to  the  first  of  May,  1823,  the  mint 
price  of  gold  of  £3  17s.  IQ-^d.  per  oz.  to  be  the  rate, 
with  the  adoption  of  the  same  plan ;  and  from  the  first 
of  May,  1823,  the  notes  to  be  paid  in  the  gold  coin  of 
the  empire  if  required.  .  .  .  They  were  permitted 
also  the  option  of  paying  in  specie  on  or  after  the  first 
of  May,  1822.  By  the  same  Act  the  laws  which  re- 
strained the  exportation  of  gold  and  silver  coin,  or  pro- 
hibited it  from  being  melted,  were  repealed." — [Hist,  of 
the  Bank  of  England,  i,  325.] 

The  debate  on  the  bill  brought  out  two  questions,  be- 
sides the  more  general  one  of  the  expediency  of  attempt- 
ing to  secure  resumption  by  legislation,  instead  of  wait- 
ing for  "a  spontaneous  re-adjustment,"  like  that  of  1817, 
which  might  become  permanent,  or,  as  the  American 
phrase  is,  "growing  up  to  the  currency." 

The  first  question  was,  shall  the  ancient  standard  be 
restored?  This  is  the  same  question  which  we  saw 
arising  at  the  recoinages  of  1696  and  1774.  For  twenty 
years  specie  payments  had  been  suspended :  during  the 
latter  portion  of  this  term  prices  had  been  greatly 
raised  by  excessive  issues.  The  government  had  con- 
tracted debts  amounting  to  many  hundred  millions  of 
pounds,  representing  loans  for  wrar  purposes,  made  in 
money  whose  purchasing  power  was  reduced  by  the 
causes  indicated.  Private  indebtedness,  commercial 
and  industrial,  to  an  enormous  amount  had  also  been 
incurred.  Should  the  money  of  the  realm  now  be  re- 
stored to  its  full  value,  and  creditors  thus  be  enabled 
to  exact  in  coin  the  full  nominal  amount  of  loans  made 


360  MONEY. 

in,  or  of  sales  at  prices  predicated  upon,  the  depreciat- 
ed money?1 

The  other  question  followed  naturally  upon  the  first: 
What  was  the  degree  of  depreciation  of  the  Bank  of 
England  note  ? 

Mr.  Ricardo  and  the  bullionists  were  bound  to  hold 

^ 

that  the  depreciation  was  measured*2  by  the  premium 
on  gold,  which  at  this  time  had  sunk  to  3  per  cent.; 
and  these  figures  became  a  sort  of  catch-word  in  the 
debates  on  the  Act  of  1819,  and  in  the  fierce  discussions 
over  the  wisdom  and  justice  of  that  Act  which  extended 
through  the  fifteen  years  next  succeeding.  The  ques- 
tion whether,  in  a  country  having  an  Inconvertible  Pa- 
per Money,  the  premium  on  gold  measures  the  depreci- 
ation, may  be  deferred  to  the  next  chapter.  It  is  enough 
here  that  this  was  the  theory  of  the  upholders  of  the 
Resumption  Act  of  1819,  and  it  was  probably  through 
their  confident  assertions  that  the  depreciation  of  the 
Bank  of  England  notes  was  very  slight  that  they  were 

1  "  One  of  the  most  fatal  effects  of  that  suspension  is  the  great  and 
unavoidable  distress  which  attends  a  return  to  a  specie  currency, 
particularly  when  the  suspension  has  been  of  long  continuance.    While 
this  lasts,  the  loss  falls  on  the  creditors ;  but  new  contracts  are  daily 
made,  founded  on  the  existing  state  of  the  currency ;  and  should  the 
suspension  continue  twenty  years,  as  was  the  case  in  England,  as 
almost  all  the  contracts  in  force  and  not  yet  executed,  at  the  time 
when  specie  payments  are  resumed,  must  have  been  made  when  the 
currency  was  depreciated,  the  obligation  to  discharge  them  in  specie 
is  contrary  to  equity,  falls  on  the  debtors,  who  are  always  the  part 
of  the  community  'less  able  to   bear  the  burden,   and  proves  more 
calamitous  than  the  suspension  had  been." — [A.  Gallatin,  Considera- 
tions, etc.,  pp.  37-8.] 

2  "  The  effect  produced  by  the  depreciation  has  been  most  ac- 
curately defined,  and  amounts  to  the  difference  between  the  market 
and  the  mint  price  of  gold." — [Ricardo,  Eeply  to  Bosanquet.] 


THE  ENGLISH  RESTRICTION.  361 

able  to  carry  that  measure,  which  they  accomplished 
under  the  championship  of  Mr.,  afterwards  Sir,  Robert 
Peel,  who  had  opposed  Mr.  Horner's  resolutions,  and 
who  frankly  admitted  that  he  went  into  Committee  with 
a  very  different  opinion  from  that  he  at  present  enter- 
tained. The  debate,  in  breadth  and  force  of  argument, 
fell  much  below  that  of  1811. 

After  the  passage  of  Peel's  Act,  whether  in  conse- 
quence of  it  or  not,  the  premium  on  gold  fell  even  fast- 
er than  was  necessary  to  meet  the  successive  require- 
ments of  the  law.  In  February,  1819,  gold  had  been 
worth  £4  Is.  6d.  In  February,  1820,  it  sold  at  £3  19s. 
lid  In  February,  1821,  it  was  worth  only  the  mint 
price  £3  17s.  lO^d,  and  on  May  1,  1821,  in  advance  of 
the  date  fixed,  the  Bank,  on  its  own  instance,  under  per- 
mission of  Parliament,  resumed  cash  payment.  Thus 
closed  what  Lord  Overstone  has  called  "the  dark  age  of 
Currency." 


The  effects  of  Peel's  Act  have  been  the  subject  of  ve- 
hement controversy.  To  this  law,  primarily,  was  at- 
tributed by  one  party  the  long  succession  of  commer- 
cial disasters,  producing  deep  and  settled  industrial 
distress,  which  followed  the  peace.  The  reduction  in 
the  world's  supply  of  the  precious  metals  through  this 
period,  due  to  the  Spanish- American  revolutions,  was 
not  so  fully  apprehended  by  the  popular  mind ;  but  the 
restriction  upon  the  issues  of  the  Bank  of  England,  and 
the  obligation  to  pay  in  gold  debts  contracted  under 
Inconvertible  Paper  Money,  were  of  a  nature  to  compel 
the  attention  of  the  least  thoughtful.  It  is  not  at  all 
surprising  that  the  commercial  and  industrial  misfort- 
unes of  the  succeeding  period  were  laid  at  the  door  of 
'the  Act  of  1819. 


362  MONEY. 

Whatever  may  have  been  the  logical  effect  of  Mr.  Bi- 
cardo's  declaration,1  that  the  depreciation  of  the  Bank 
of  England  notes  was  but  three  per  cent.,  the  public 
mind  had  followed  it  out  to  a  conclusion  that  the 
effect  of  resumption  on  prices  would  be  slight.  When, 
therefore,  the  most  extensive  disturbances  in  trade 
followed  resumption,  and  the  prices  of  the  most  im- 
portant articles  fell  through  many  degrees,  bringing 
to  distress,  if  not  to  ruin,  large  manufacturing  and  ag- 
ricultural interests,  it  was  natural  enough  that  the  dis- 
tress should  be  charged  to  the  Act  of  1819.  The  the- 
ory of  that  Act,  it  was  alleged,  had  been  wrong.  Mr. 
Eicardo  had  been  egregiously  mistaken2  in  saying  that 
the  depreciation  was  but  three  per  cent.  The  depreci- 
ation had  been  30,  40,  or  even  50  per  cent. ;  and  the  en- 
forced resumption  had  aggravated  to  this  extent  the 
burden  of  all  fixed  charges,  private  and  public,  includ- 
ing the  enormous  debt  with  which '  England'  had  issued 
from  the  twenty-two  years'  struggle.  Of  all  who  took 
a  part  in  the  controversy  over  the  wisdom  and  justice 
of  the  Act  of  1819,  its  ablest  and  boldest  assailant  was 

1  "If."  says  Mr.  Tooke  [History  of  Prices,  ii,  117],  "it  had  been 
an  object  with  the  legislature,  when  the  state  of  the  currency  was 
brought  before  it  in  1819,  to  maintain  the  prices  which  had  been  the 
consequence  of  scarcity  and  speculation,  no  means  were  open  to  it 
but  to  degrade  the  standard  ~by  between  30  and  50  per  cent,  at  a  time 
when,  by  the  ordinary  tests  of  the  price  of  gold  and  the  exchanges, 
the  utmost  depreciation  of  the  paper  did  not- exceed  between  3  and 
5 per  cent" 

2  It  is  a  favorite  assertion  with  writers  on  this  side  the  question, 
that  Mr.  Ricardo  subsequently  recanted  his  opinions  as  to  the  extent 
of  the  depreciation,  and  admitted  his  error.     See  Sir  James  Graham, 
"  Corn  and  Currency,"  pp.  39,  40,  43 ;  William  Ward,  "  Commercial 
Legislation  of   1846"   (quoted   by  Duncan   on   Currency,  p.    116); 
Thomas  Attwood,  "  The  Scotch  Banker,"  pp.  14,  22,  24. 


THE  ENGLISH  RESTRICTION.  363 

Sir  James  Graham.  His  tract,  "Corn  and  Currency," 
published  in  1826,  contains  an  unmeasured  denuncia- 
tion of  that  measure. 

"Whether  we  regard  private  debts  or  public  burdens, 
the  effects  of  the  measure  of  1819  have  been  to  enact, 
that  for  every  less  sum  owing  a  greater  shall  be  paid ; 
prices  falling,  but  pecuniary  engagements  remaining  un- 
diminished,  the  farmer  has  no  profit,  the  landlord  no 
rent,  the  manufacturer  no  customer,  the  laborer  no  em- 
ployment; a  revolution  of  property  and  a  derangement 
of  the  whole  frame  of  society  must  necessarily  ensue. 
It  has  conferred  on  the  fund-holder  a  benefit 
to  the  extent  of  the  depreciation  of  the  money  which 
he  advanced ;  in  many  cases  this  is  equal  to  35  per  cent. 
But  this  rise  of  the  fundlord  is  affected  by  ruin  of  the 
landlord.  Estates  which  have  been  held  from  gen- 
eration to  generation  in  the  same  family  are  rapidly 
changing  owners;  and,  as  the  country  gentleman  re- 
tires, the  fund-holder  advances.  .  .  .  Amidst  the 
ruin  of  the  farmer  and  the  manufacturer,  the  distress  of 
landlords,  and  the  insurrections  of  a  populace  without 
bread  and  without  employment,  one  class  flourished 
and  was  triumphant:  the  annuitant  and  the  tax-eater 
rejoiced  in  the  increased  value  of  money;  in  the  sacri- 
fice of  productive  industry  to  unproductive  wealth,  in 
the  victory  of  the  drones  over  the  bees."  Sir  James 
Graham  appealed  to  the  example  of  France  and  the 
United  States  at  the  close  of  the  preceding  century,  in 
support  of  the  justice  and  expediency  of  a  reduction  of 
the  standard  to  meet  the  facts  of  the  circulation. 

"In  the  example  of  France  we  find  retributive  jus- 
tice ;  in  the  example  of  America,  prospective  wisdom : 
but  in  vain  shall  we  seek  to  discover  the  slightest  ves- 
tige of  either  virtue  in  the  British  enactments  of  1797 


364  MONEY. 

and  1819.  Here  by  law  we  depreciated  the  currency, 
and,  by  a  solemn  resolution  of  the  House  of  Commons,1 
denied  the  fact  of  depreciation.  Here  by  law  we  raised 
the  value  of  money,  and,  instead  of  avowing  our  pur- 
pose and  preparing  for  its  effects,  we  mystified  the  in- 
tention and  were  blind  to  the  result." 

But,  while  the  opponents  of  the  acf  of  1819  indulged 
in  the  very  extravagance  of  vituperation,  Mr.  Tooke2 
has  undertaken  to  demonstrate  that  that  measure  was, 
in  fact,  absolutely  nugatory,  causes,  commercial  and 
financial,  operating  independently  of  it  to  bring  about 
resumption  without  reference  to  the  law,  and,  as  we 
have  seen,  in  advance  of  its  requirements. 

"If,  then,"  says  Mr.  Tooke,  "Peel's  Bill  was  thus  in- 
operative and  therefore  innocent  of  all  the  evils  which 
have  been  so  abundantly,  and  with  so  much  superflu- 
ous eloquence,  laid  to  its  charge,  it  may  be  asked,  what 
was  the  merit  of  the  bill,  and  what  was  the  ground  of 
the  importance  attached  to  it  by  its  promoters  ?  .  .  . 
The  merit  of  the  measure  was,  as  it  has  since  turned 
out,  independent  of  the  event.  That  merit  consisted  in 
the  sanction  which  it  afforded  to  the  principle  that  the 
Bank  has  the  power,  by  the  regulation  of  its  issues,  to 
preserve  the  value  of  its  paper  on  a  level  with  that  of 
gold ;  and  the  importance  attached  to  it  by  its  promoters 
is  fully  justified  by  the  consideration  that,  at  the  time 
when  it  was  under  discussion,  there  was  fair  ground  for 
contemplating  circumstances  under  which  the  compul- 
sory clauses  of  the  act  would  come  into  operation." — 
[Hist,  of  Prices,  ii,  108-9.] 

It  might  well  be  thought  that  the  history  of  the  Bank 

1  Mr.  Yansittart's,  quoted  on  p.  354. 
8  See  his  letter  to  Lord  Grenville,  1829. 


SUSPENSION  IN  FRANCE.  365 

Restriction  more  properly  belongs  in  a  later  depart- 
ment of  our  inquiry,  inasmuch  as  the  notes  of  the  Bank 
were  never,  in  any  sense,  government  paper,  and  hence 
their  inconvertibility  from  1797  to  1821  might  be  re- 
garded as  resulting  from  the  degeneration  of  a  convert- 
ible paper  money.  But,  as  the  government  took  the  in- 
itiative in  the  suspension,  and  as  the  question  whether 
the  Bank  should  resume  specie  payments  (which,  for  a 
time,  the  directors  professed  to  be  not  only  able  and 
willing,  but  desirous,  to  do,)  was  always  treated  as  a 
question  of  government  policy,  the  account  of  the  great 
English  suspension  has  been  introduced  here. 

OTHEK  EXAMPLES. 

England  presents  the  last  example  of  a  great  commer- 
cial nation,  after  a  long  period  of  suspension,  freeing 
itself  from  the  evils  of  inconvertible  paper,  and  re-adopt- 
ing the  money  of  the  world.  France,  Russia,  Austria, 
Italy,  and  the  United  States,  of  the  more  important 
countries  of  the  globe,  with  a  number  of  smaller  states, 
have,  at  various  times,  lapsed  into  this  condition,  and 
still  remain  under  irredeemable  paper  money,  though 
in  France  and  the  United  States  the  government  has 
pledged  itself  to  an  early  resumption,  and  the  premium 
on  gold  has  approached  a  minimum. 

In  France  the  Revolution  of  February  caused  the 
government  in  1848  to  authorize  the  Bank  of^  France  to 
suspend  specie  payments.  So  closely,  however,  were 
the  issues  limited  that  the  notes  of  the  Bank  were  not 
depreciated  beyond  2  or  3  per  cent.,  and  this  only  for  a 
brief  period.  M.  Wolowski  states l  that  this  forced  cir- 
culation lasted  only  about  four  months. 

1  La  Question  des  Banques,  p.  258. 


366  MONEY. 

The  occurrence  of  the  war  with  Germany  in  1870 
caused  a  suspension  by  the  Bank,  which  has  lasted  to 
the  present  time  ;  but  during  all  this  period  the  condi- 
tion of  her  circulation  has  constituted  a  triumph  of 
sound  finance.  Although  irredeemable,  her  paper  has 
never  been  allowed,  at  any  moment,  to  become  greatly 
in  excess.  The  premium  in  gold  has  never  gone  above 
1.5  per  cent,  and,  during  the  greater  portion  of  the  period, 
has  been  5,  4,  or  even  less,  per  mille.  "  The  failure  of  the 
French  armies,"  wrote  the  late  Mr.  Bagehot,  in  Novem- 
ber, 1874,  "has  not  been  more  striking  than  the  success 
of  French  banking."  This  is  the  country  which  we  saw 
run  such  a  mad  career,  under  the  leadership  of  her  ora- 
tors, but  now,  under  the  guidance  of  statesmen  and  econ- 
omists, offers  the  world  a  model  of  cautious,  conservative, 
honorable  finance. 

The  Russian  paper  money  dates  back  to  1768,  when  a 
sort  of  assignats,  to  the  amount  of  40,000,000  roubles, 
were  put  in  circulation,  in  direct  payments  by  the  gov- 
ernment, on  the  commencement  of  the  war  with  Turkey. 
"The  manifesto  accompanying  the  issue  of  this  paper," 
says  Mr.  Tooke,1  "left  it  in  doubt  whether  the  payment 
to  bearer  was  to  be  in  copper  or  silver ;  and,  according 
to  Storch,  opinions  were  still  divided  when  he  wrote  in 
1815."  "The  agio"  says  Mr.  Tooke,  "in  favor  of  silver 
varied  only  from  1  to  3  per  cent,  in  that  interval,  while 
there  was  an  agio  of  1 : 5  per  cent,  in  favor  of  paper 
against  copper." 

In  1787,  however,  a  sudden  addition  was  made  of  60,- 
000,000  roubles,  accompanied  by  a  pledge  that  no  more 
should  be  issued ;  but  a  series  of  exhausting  wars  with 

1  Hist,  of  Prices,  ii,  67.  For  Russian  paper  money  see  also,  i, 
140-1 ;  ii,  209-16. 


RUSSIAN'  PAPER  MONEY.  367 

Sweden,  Turkey,  Poland,  Persia,  and  France,  caused  a 
successive  increase  of  the  paper  till,  in  1810,  the  amount 
outstanding  was  computed  at  577,000,000.  The  pre- 
mium on  silver1  had  risen  to  400.  During  the  progress 
of  the  depreciation,  the  customs-dues  were  paid  in  paper, 
the  rates  in  silver,  as  fixed  by  law,  being  converted  into 
paper  rates,  according  to  the  premium  ruling  at  the  time. 
In  1839  the  emperor,  by  a  manifesto,  ordained  the 
adoption  of  cash  payments,  by  making  the  paper  rouble 
in  circulation  payable  in  silver  on  demand,  in  the  pro- 
portion of  By :  1. 

The  aggressive  enterprises  of  Russia  have  since  in- 
volved her  in  new  financial  embarrassments,  and  at  the 
outbreak  of  the  present  war  gold  stood  at  12  to  16  per 
cent,  premium  at  St.  Petersburg.  Mr.  Seyd2  offers  the 
following  significant  remark  respecting  the  Russian 
paper  money  :  "  As  regards  the  rouble  notes  in  circula- 
tion in  the  Russian  Empire,  it  is  stated  that  the  impe- 
rial government  itself  is  not  aware  of  the  actual  totals 
issued,  and  has  thus  lost  control  over  its  liabilities  in 
reference  to  the  same ;  moreover,  a  large  quantity  of 
successfully  forged  notes  is  in  circulation,  which  the 
authorities  hesitate  to  suppress,  fearing  a  further  dis- 
turbance of  credit.  If  this  be  true,  we  may  soon  hear 
of  something  more  serious  than  a  mere  farther  depre- 
ciation of  Russian  paper  money." 

1  Mr.  Tooke  notes  as  a  curious  fact,  that  the  value  of  Russian  paper 
money  increased  coincidently  with  the  invasion  of  the  French  armies, 
in  1812,  insomuch  that  the  exchange  for  the  rouble,  which  a  few 
months  before  had  been  14d,  rose,  by  the  time  the  French  reached 
Moscow,  to  24d — [Hist,  of  Prices,  i,  140.]  Mr.  Tooke  attributes  this 
singular  phenomenon  to  the  fear  that  the  export  of  Russian  produce 
would  be  cut  off  by  the  French,  leading  to  the  disposition  to  buy 
largely  in  advance,  at  almost  any  rate. 

8  Bullion  and  Foreign  Exchanges,  pp.  52-3. 


368  MONET. 

Paper  money  has  long  been  the  curse  of  Austria,1  but 
the  present  epoch  of  inconvertible  paper  began  in  1848 
through  the  revolutionary  movements  of  that  year. 
The  existing  government-issues  amount  to  about  one 
hundred  and  fifty  millions  of  dollars,  American  money, 
circulating  equally  in  both  divisions  of  the  empire.2 
The  fluctuations  of  the  gold  premium  in  Austria  have 
been  very  considerable,  very  largely  depending,  as  it 
would  seem,  on  political  events. 

"Twice  already,"  says  Herr  Max  Wirth,3  "in  1859  and 
1866,  efforts  have  been  made  to  return  to  hard  money ; 
but  on  both  occasions  they  were  frustrated  by  impend- 
ing wars."  In  the  latter  year  the  exigencies  of  the  war 
with  Prussia  drew  the  empire  into  a  condition  of  al- 
most hopeless  insolvency.  In  May,  1866,  there  were  in 
circulation  notes  amounting  to  fifty-four  millions  of 
dollars  of  American  money:  by  the  end  of  the  year 

1  "  La  papier  monnaie  est,  depuis  la  fin  du  siecle  dernier,  a  la  suite 
de  la  guerre  de  Sept  Ans,  1'ulcere  de  1'Autriche." — [J.  Gamier,  Traite 
de  Finances,  p.  411.] 

2  During  the  complications  with   Hungary  in   1861,   a  suit  was 
brought  in  the  English  Court  of  Chancery  [the  Emperor  of  Austria 
vs.  Day  and  Kossuth]  to  compel  the  defendants  to  deliver  up  to  be 
canceled  23  tons  weight  of  paper  money,  to  the  value  of  over  100 
million  florins,  engraved  by  order  of  the  exile  Kossuth,  and  purport- 
ing to  be  the  notes  of  the  Hungarian  nation.     The  Court  decided 
that  it  could  not  interfere  to  prevent  a  revolution  in  the  Austro- 
Hungarian  Empire,  or  on  account  of  any  alleged  hostility  to  the  polit- 
ical rights  of  the  plaintiff  as  sovereign  of  Hungary ;  but  that  the 
intended  introduction  of  the  notes  into  Hungary  constituted  a  dam- 
age to  the  property  of  the  plaintiff  as  sovereign,  and  to  the  property 
of  his  subjects,  whom  he  had  a  right  to  represent  in  an  English  court. 
The  Court  ordered  the  money  to  be  reduced  to  paper  pulp,  and 
then  returned  to  the  defendants. 

8  International  Review,  May-June,  1876. 


UNITED  STATES  LEGAL  TENDERS.  369 

these  had  been  increased  to  $100,000,000.  The  highest 
point  was  reached  in  May,  1873,  when  the  issues  stood 
at  $170,000,000. 

The  forced  circulation  of  paper  in  Italy  is  of  more  re- 
cent date ;  but  the  issues  have  been  rapidly  increased, 
and  a  corresponding  depreciation,  from  12  to  20  per 
cent.,  has  resulted.  In  Spain,  says  Mr.  Seyd,  "the  state 
of  things  is  so  uncertain  that  the  relative  value  between 
paper  money  and  metallic  money  can  no  longer  be  fixed 
with  any  degree  of  accuracy."  Turkey,  besides  a  med- 
ley of  debased  coin,  has  notes  of  the  Imperial  Ottoman 
Bank,  practically  irredeemable,  circulating  at  a  varying 
discount. 

Most  of  the  states  of  Central  and  South  America  sus- 
tain paper  money  in  circulation,  at  a  discount  ranging 
upwards  to  399  parts  in  400.  * 

The  present  paper  money  of  the  United  States  was  first 
issued  in  1862,  in  the  amount  of  $150,000,000,  as  a  meas- 
ure of  resource,  the  recognized  alternative  being  the  sell- 
ing of  government  bonds  below  par  in  gold.  The  choice 
was  admittedly  in  the  power  of  the  government;2  but 

1  The  paper  money  of  the  Argentine  Republic,  at  the  last  quotation 
T  have  observed,  was  at  96  per  cent,  discount.     The  Republic  of 
tfayti  recently  had  300,000,000  piastres  of  paper  money.     The  rate 
of  exchange  was  authoritatively  fixed  at  300  paper  dollars  for  one  of 
coin.      The    Report  of   the   United   States   Commissioners   to    San 
Domingo,  in  1871,  showed  that  the  latest  issue  of  paper  was  at  10  to 
20  per  cent,  discount.     "Credit  notes,"  so  called,  an  earlier  issue, 
were  received  by  the  government  at  the  rate,  fixed  by  decree,  of 
one    dollar    silver  for    30    dollars   paper — 96f   per   cent,    discount. 
"  Treasury  notes,"  so  called,  a  still  earlier  issue,  were  received  at  the 
rate  of  one  dollar  silver,  to  400  dollars  paper — 99f  per  cent,  discount. 

2  The  author  of  the  bill  declared  "  its  .great  object "  to  be  "  to  pre- 
vent all  forcing  of  the  government  to  sell  its  bonds  in  the  market  to 
the  highest  bidder  for  .coin." — [Speech  of  February  19.1 


370  MONEY. 

the  Committee  of  Ways  and  Means,  through  their  chosen 
spokesman,  Mr.  E.  G.  Spaulding,  "objected  to  any  and 
every  form  of  'shinning'  by  government  through  Wall 
or  State  Streets,  to  begin  with ;  objected  to  the  knock- 
ing down  of  government  stocks  to  seventy-five  or  sixty 
cents  on  the  dollar,  .  .  .  and  finished  with  firmly 
refusing  to  assent  to  any  scheme  which  should  permit 
a  speculation  by  brokers,  bankers,  and  others  in  the 
government  securities."1  Such  absolute  silliness  takes 
the  whole  narrative  out  of  the  domain  of  serious  history, 
and  transfers  Mr.  Spaulding  to  the  comic  stage.  When 
men  speaking  for  the  legislature  of  thirty  millions  of 
people  can  think  of  preventing  speculation  in  stocks, 
declare  a  forced  circulation  of  paper  preferable  to  the 
sale  of  six  per  cent,  bonds  below  par  in  gold  by  a  gov- 
ernment at  war  for  its  very  existence,  and  talk  about  vin- 
dicating the  power  and  dignity  of  the  government,2  by 

1  This  is  language  used  by  the  "  New  York  Tribune  "  in  its  account 
of  Mr.  Spaulding's  position  in  the  interview  between  the  Secretary  of 
the  Treasury,  the  Committee  on  Ways  and  Means  of  the  House  of 
Representatives  and  the  Bank  Committees  of  the  principal  cities,  in 
January,    1862.      As  Mr.   Spaulding   adopts   the  language  without 
qualification  in  his  History  of  the  Legal- tender  Act  of  1862,  it  may 
fairly  be  taken  as  expressive  of  his  views. 

2  "But,  sir,  knowing  the  power  of  money,  and  the  disposition  there 
is  among  men  to  use  it  for  the  acquisition  of  greater  gain,  I  am  un- 
willing that  this  government,  with  all  its  immense  power  and  re- 
sources, should  be  left  in  the  hands  of  any  class  of  men,  bankers  or 
money-lenders,    however   respectable   and   patriotic    they   may   be. 
The  government  is  much  stronger  than  any  of  them.     Its  capital  is 
much  greater.     It  has  control  of  all  the  bankers'  money,  and  all  the 
brokers'  money,  and  all  the  property  of  the  thirty  millions  of  people 
under  its  jurisdiction.     Why,  then,  should  it  go  into  Wall  Street, 
State  Street,  Chestnut  Street,  or  any  other  street,  begging  for  mon- 
ey ?     ...     I  prefer  to  assert  the  power  and  dignity  of  the  govern- 
ment by  the  issue  of  its  own  notes." — [Mr.  Spaulding's  speech  of 
January  28.] 


UNITED  STATES  LEGAL  TENDERS.  371 

the  passage  of  a  legal-tender  act,  what  but  financial  folly 
in  action  can  be  expected  ? 

Mr.  Spaulding's  language  was  not  only  not  rebuked 
by  the  Congress  which,  in  this  supreme  crisis  of  the  na- 
tional destiny,  was  to  make  choice  of  "ways  and  means" 
for  conducting  a  mighty  war,  it  was  far  exceeded  in  de- 
bate, not  by  a  furious  and  desperate  minority  driven  to 
the  wall,  but  by  the  leaders  of  the  House,  the  chairmen 
of  important  committees,  occupying  positions  which  in 
England,  France,  or  Germany  would  be  filled  by  men 
profoundly  versed  in  public  right,  in  constitutional  law, 
and  in  finance. 

Sneers  and  flings  at  "brokers  and  hawkers  on  'change," 
"huckstering  capitalists,"  "money-shavers,"  "harpies," 
"jobbers  and  money-changers,"  abounded  in  all  the  de- 
bates on  the  legal- tender  bill  introduced  by  the  Commit- 
tee. And  so,  "in  the  vigor  of  a  nation  not  yet  taxed  a 
single  dollar  for  the  cost  of  this  war,"1  the  Congress  of 
the  United  States  chose  to  inaugurate  a  period  of  forced 
circulation,  rather  than  sell  its  six  per  cent,  bonds -below 
par,  though  at  the  time  the  ordinary  rate  of  commercial 
interest  in  most  of  the  towns  and  cities  of  the  land  ex- 
ceeded six  per  cent.2  What  loss  of  wealth,  not  to  be 
computed  except  by  thousands  of  millions ;  what  injury 
to  national  reputation  and  to  private  character,  were  in- 
volved in  this  measure  ! 

None  of  the  pleas  which  might  be  urged  to  excuse  the 
Continental  Congress  for  resorting  to  the  issue  of  irre- 

1  Speech  of  Hon.  J.  S.  Merrill. 

a  Mr.  Spaulding  states  that  the  7-30  notes  could  not  ,at  this  time 
be  paid  out  from  the  Treasury  except  at  a  discount  of  two  per  cent. 
This  was  a  sufficient  reason  for  forced  circulation !  He  was,  how- 
ever, good  enough  to  say :  "  When  money  can  be  obtained  at  par  on 
six  per  cent,  bonds,  I  would  prefer  to  have  that  done  to  the  issuing 
a  very  large  amount  of  legal-tender  notes." 


372  MONEY. 

deemable  paper,  can  be  offered  in  behalf  of  the  Congress 
of  1862.  The  Continental  Congress  had  no  coercive  au- 
thority, no  powers  of  taxation,  not  even  over  foreign 
goods  arriving  at  the  ports  of  the  country.  It  could 
obtain  funds  only  by  the  contributions  of  the  several 
States,  which  were  free  to  grant  or  to  withhold  what  was 
asked.  Moreover,  the  people  of  almost  every  State  had 
been  debauched  by  the  effects  of  their  colonial  issues, 
shrinking  from  the  very  thought  of  taxation,  and  resort- 
ing with  fatal  facility  to  the  manufacture  of  paper 
money. 

The  Congress  of  the  United  States  in  1862  had  ample 
powers ;  it  could  lay  its  taxes  directly  upon  the  trades 
and  occupations  of  the  people,  and  upon  every  form  of 
wealth,  in  every  stage  of  production  or  exchange,  ex- 
cepting upon  domestic  goods  in  act  of  exportation. 
The  people  of  the  United  States  were  not  backward. 
They  were  prepared  to  bear  the  burdens  of  the  war,  not 
only  with  a  noble  patience,  but  with  cheerfulness ;  and 
in  fact,  during  the  later  years  of  the  war  and  for  years 
after,  they  did  submit  without  complaining  to  as  clumsy 
and  irritating  a  system  of  taxation  as  has  been  devised 
in  recent  times.  There  was  no  failure  anywhere,  except 
in  the  leaders  of  Congress. 

All,  however,  did  not  fail  alike  in  this  emergency. 
The  little  State  of  Yermont  offered,  through  Kepresent- 
ative1  Morrill  and  Senator  Collamore,  a  most  manly  re- 
sistance to  the  passage  of  the  Act.  Nor  can  much  be 
added  to  or  taken  from  Mr.  Owen  Lovejoy's  financial 
programme:  "I  would  issue  interest-bearing  bonds  of 
the  United  States,  and  go  into  the  markets  and  borrow 
money,  and  pay  the  obligations  of  the  government. 
This  would  be  honest,  business-like,  and,  in  the  end, 

1  Now  Senator. 


UNITED  STATES  LEGAL  TENDERS.  373 

economical."  Messrs.  Horton  and  Eoscoe  Conlding  in 
the  House,  and  Messrs.  Fessenden  and  Sunnier  in  the 
Senate,  also  showed  an  enlightened  appreciation  of 
financial  principles. 

The  legal-tender  bill  became  law  February  25,  1862, 
and  it  was  here  seen,  as  before  in  France,  that  the  real 
battle  had  been  fought  upon  the  first  issue.  Although 
the  Chairman  of  the  Committee  had  stated  that,  in  his 
judgment,  the  $150,000,000  provided  for  by  the  Act  was 
a  maximum,  on  the  llth  of  July  following  Congress  au- 
thorized another  issue l  of  $150,000,000,  and  on  the  3d 
of  March,  1863,  still  another  issue  of  equal  amount.  In 
the  summer  of  1864,  the  premium  on  gold  having  risen, 
in  consequence  of  excessive  issues,  to  150  per  cent., 
Congress  passed  an  Act,  June  30,  declaring  that  the 
total  amount  of  United  States  notes  should  at  no  time 
exceed  $400,000,000,2  "and  such  additional  sum,  not  ex- 
ceeding $50,000,000,  as  may  be  temporarily  required  for 
the  redemption  of  temporary  loans."  Meanwhile  the 
National  Banking  System  had  been  established  and  was 
somewhat  slowly  going  into  operation,  issuing  notes 
which  were  redeemable  in  legal  tenders,  and  hence  a 
direct  addition  to  the  Inconvertible  Paper  Money  of  the 

1  March  17,  1862,  demand  notes,  issued  prior  to  the  Legal-tender 
Act,  to  the  amount  of  about  $60,000,000,  were  made  legal  tender  to 
the  same  extent  as  the  notes  authorized  by  the  Act  of  February  25. 

2  Prof.   Sumner  finds  in  the  $400,000,000   restriction  a  marked 
characteristic  of  our  paper  money  system.     It  is,  he  says,  "redun- 
dant, but  fixed  in  amount."     This  he  terms  a  peculiar  feature,  "  un- 
precedented, so  far  as  I  have  been  able  to  learn,  in  the  history  of 
paper  money." — [Hist.  Am.  Currency,  p.  214.]     We  may  suppose 
that  Prof.  Sumner  finds  the  peculiarity  of  our  present  situation,  not 
in  the  fact  that  a  limit  is  set  by  law  to  the  amount  of  paper,  but  in 
the  fact  that  the  limit  so  set  has  been  maintained. 

32 


374 


MONET. 


country.  The  following  table  exhibits  the  course  of  the 
premium  on  gold  during  the  first  five  years  of  forced 
circulation : 

Table  of  Highest  and  Lowest  Premium  Rates  of  Gold,   by  Months, 
January,  1862,  to  December,  1866. 


1862 

1863 

1864  ; 

1865 

1866 

L 

H 

L 

H 

L 

H 

L 

H 

L 

H 

January, 

0 

5 

34 

60f 

51* 

60 

97i 

134£ 

36| 

44| 

February, 

21 

4f 

53 

72* 

571 

61 

96f 

116| 

351 

41* 

March, 

H 

2* 

39 

71* 

59 

69f 

481 

101 

25 

36* 

April, 

H 

2* 

46 

59 

66i 

87 

44 

60 

25 

29* 

May, 

21 

41 

43i 

55 

68 

90 

28| 

451 

25£ 

41* 

June, 

B* 

9* 

40£ 

48f 

89 

151 

35| 

47| 

37! 

67| 

July, 

9 

201 

23-1- 

45 

122 

185 

38 

46|- 

481 

55f 

August, 

12* 

16J 

221 

29f 

131$ 

162 

401 

45| 

46^ 

521 

September, 

16* 

24 

27 

431 

85 

155 

42! 

45 

44 

46f 

October, 

22 

37 

40| 

56f 

89 

129 

44 

49 

45| 

54f 

November, 

29 

33i 

43 

54 

109 

160 

45^ 

48| 

37i 

48! 

December, 

30 

34 

47 

52f 

111 

144 

44£ 

46| 

311- 

41f 

Only  one  manful  effort  has  been  made  since  the  con- 
clusion of  the  war  to  rid  the  nation  of  the  irredeemable 
paper  money  brought  into  existence  by  the  ill-advised 
legislation  of  February,  1862.  Under  the  administra- 
tion of  the  Treasury  Department  by  Mr.  McCulloch,  a 
reduction  of  the  amount  of  outstanding  legal-tender 
notes  was  systematically  undertaken ;  but,  before  this 
necessary  work  had  proceeded  far  enough  to  accomplish 
any  important  results,  the  pain  and  terror  of  the  coun- 
try under  the  wholesome  stringency  of  the  discount 
market  and  the  puncturing  of  inflated  prices  led  to  the 
repeal,  in  January,  1868,  of  the  Act  of  December  18, 
1865, [  which  had  authorized  the  retirement  of  legal 
tenders. 


1  The  utter  lack  of  consequence  in  the  financial  legislation  of  Con- 
gress is  seen  in  the  history  of  this  bill.     It  was  originally  passed 


UNITED  STATES  LEGAL  TENDERS.  375 

Prof.  Sumner  notes1  that  the  turning-point  at  which 
the  contraction  of  the  legal-tender  notes  met  the  expan- 
sion of  the  national  bank-note  circulation  was  at  the 
date  of  the  repeal  of  the  Act  of  1865.  By  Mr.  McCul- 
loch's  withdrawal  of  paper,  the  legal  tenders  had  been 
reduced  to  $356,000,000,  while  the  national  bank  issues 
stood  at  $294,000,000. 

It  is  not  wdthin  the  scope  of  this  work  to  propose  or 
discuss  schemes  for  the  resumption  of  specie  payments. 
The  hard  experience  of  four  years  of  prostrate  industry 
and  collapsed  credit  has  brought  the  nation  to .  the 
point  where  the  market  value  and  the  legal  rating  of 
United  States  notes  closely  approach  each  other.  The 
exhausted  swimmer  thus  borne  in  towards  the  shore 
may  again  be  carried  out  to  sea  with  a  turn  of  the  tide. 
A  single  manful  effort  would  suffice  to  re-establish  our 
national  credit,  and  place  industry  on  a  sound  basis. 
On  the  other  hand,  delay  and  evasion  now  may  render 
vain  all  the  suffering  of  the  past  four  years.  There  has 
never  been  wanting  for  the  achievement  of  specie  pay- 
ments more  than  the  public  virtue  among  the  people 
strongly  to  desire  it,  the  moderate  intelligence  among 
our  rulers  to  choose  the  simple  means  that  are  pointed 
out  by  all  experience,  and  the  courage,  in  both  people 
and  rulers,  to  bear  for  a  brief  time  the  pain  of  the  sur- 
gery and  the  cautery  which  alone  can  bring  healing. 

with  only  six  dissenting  voices  in  the  House  of  Representatives ; 
yet  as  soon  as  it  began  to  produce  its  normal  and  necessary  results, 
such  as  any  man  of  plain  sense  would  have  anticipated,  the  Act  was 
rescinded.  What  but  confusion  and  disaster  can  be  expected  where 
laws  concerning  fundamental  policy  are  thus  heedlessly  enacted  and 
repealed  ? 

1  Hist.  Am.  Currency,  p.  212. 


( 
CHAPTEE  XYII. 

THE  THEORY  OF  INCONVERTIBLE  PAPER  MONEY,  CONCLUDED. 

THE  principles  of  money,  as  they  have  been  stated  in 
the  progress  of  our  inquiry,  and  the  experience  recited 
in  the  two  preceding  chapters,  appear  to  justify  the  fol- 
lowing conclusions : 

1.  A  paper  money,  of  mere  convention,  having  no 
"intrinsic  value"  in  the  sense  in  which  that  phrase  is 
commonly  used,  may  become  the  general  medium  of  ex- 
change in  any  community,  being  freely  received  by  all 
having  goods  to  sell,-  in  the  confidence  that  it  will,  in 
due  course,  be  taken  by  others.     This  acceptance  of  a 
paper  money  may  become  so  general  and  complete  that, 
for  a  time  at  least,  it  cannot  be  distinguished  from  the 
acceptance  of  the  precious  metals. 

2.  Given  the  fact  of  a  general  desire  on  the  part  of 
producers  for  one  article  of  uniform  quality  which  is 
susceptible  of  easy  division,  we  have  fulfilled  all  the  re- 
quirements of  a  common  denominator  in  exchange.     The 
effort  of  every  dealer  to  obtain  as  much  as  possible  of 
this  one  article  for  each  and  every  part  of  his  stock ; 
the  aim  of  every  producer  to  bring  to  market  the  prod- 
uct requiring  least  labor  which  will  command  a  given 
quantity  of  this  article  in  exchange,  these  must  result 
in  ranging  all  commodities,  according  to  the  cost  of  re- 
placing them,  upon  a  scale  of   value,  the  degrees  of 


THEORY  OF  INCONVERTIBLE  PAPER  MONEY.  377 

which  shall  be  expressed  in  terms  of  this  one  article. 
This,  as  we  have  seen,  a  money  of  mere  convention  is 
competent  to  effect. 

3.  Such  money,  so  long  as  its  popular  acceptance  con- 
tinues,  performs  the  office  of  a  standard  for  deferred 
payments,  well  or  ill,  according  as  its  amount  is  regu- 
lated.    We  have  seen  how  inadequately,  at  times,  the 
precious  metals  have  discharged   this  money-function. 
The  advocate  of  inconvertible  paper,  or  "ideal"  money, 
does  not,  therefore,  admit  the  mere  fact  of  depreciation, 
or  the  existence  of  a  premium  on  gold  and  silver,  to  be 
proof  of  the  failure  of  such  money  to  perform  its  office. 
It  may,  the  rather,  be  proof  that  gold  and  silver  have 
failed,  in  part,  to  discharge  their  function  as  a  standard 
for  deferred  payments.     In  the  phrase  of  the  anti-bull- 
ionists  of  1810-9,  it  may  be,  not  that  paper  has  fallen, 
but  that  gold  and  silver  have  risen.     The  object  of  a 
standard  for  deferred  payments  being  to  secure  the  pay- 
ment, at  the  maturity  of  obligations,  of  substantially 
the  same  purchasing  power  that  was  in  contemplation 
of  the  parties  at  the  formation  of  the   contract,  it  is 
conceivable  that  a  paper  money  might  be  so  regulated 
as  to  preserve  a  more  uniform  value,  from  generation  to 
generation,  than  the  precious  metals  have  maintained 
during  any  considerable  period  of  the  world's  history. 
We  have  seen1  that  that  is  the  weak  point  of  the  pre- 
cious metals  in  their  use  as  money. 

4.  Such  a  money,  being  released  from  all  natural  con- 
ditions of  production,  with  whatever  advantages,  actual 
or  theoretical,  may  be  found  in  that  fact,  becomes  sub- 
ject to  purely  arbitrary  regulation  as  to  its  amount. 
We  have  seen  that,  while  the  production  of  gold  and 

1  See  pp.  157-9. 


378  MONEY. 

silver  is  subject  to  great  changes,  it  yet  requires  a  term 
of  years,  often  considerable,  to  influence  greatly  the 
value  of  the  existing  supply ;  and  that,  whatever  the 
stock  at  any  period,  there  is  a  force  constantly  operat- 
ing to  distribute  it  according  to  the  occasion  each  coun- 
try and  each  community  may  have  for  its  use,  preserv- 
ing thus  its  value  uniform1  the  world  over. 

Inconvertible  Paper  Money,  however,  may  be  in- 
creased indefinitely  at  will.  It  costs  twice  as  much 
labor  to  raise  two  thousand  ounces  of  gold  from  the 
mine  as  to  raise  one  thousand  ounces.  It  costs  no  more 
to  print  a  thousand  two-dollar  bills,  or  ten-dollar  bills, 
than  to  print  a  thousand  one-dollar  bills.  We  saw  the 
assignats  of  France  mount  by  two  or  three  milliards  a 
month,  between  May,  1795,  and  January,  1796.  Nor 
does  any  force  operate  to  distribute  an  excess  of  issues 
throughout  the  commercial  world.  Limited  circulation 
is  the  essential  characteristic  of  Inconvertible  Paper 
Money. 

The  possibilities  of  evil,  therefore,  which  lie  in  the 
abuse  of  the  power  of  issuing  such  money,  are  almost 
infinitely  greater  than  those  which  inhere  in  a  metallic 
circulation. 

5.  The  danger  of  overissue  is  one  which  never  ceases 
to  threaten  an  Inconvertible  Paper  Money.2  The  path 
winds  even  along  the  verge  of  a  precipice.  Vigilance 
must  never  be  relaxed.  The  prudence  and  self-restraint 
of  years  count  for  nothing,  or  count  for  but  little,  against 

1  The  cost  of  transportation  being  taken  into  the  account. 

2  "  Apres  un  delai  plus  ou  moins  bref,  le  papier-monnaie  a  toujours 
subi  une  depreciation.     A  cette  regie  je  ne  connais  qu'une  excep- 
tion, jcelle  du  papier-monnaie  emis  par  le  royaume  de  Prusse,  ou 
1'attention  la  plus  scrupuleuse  a  ete  apportee  a  ce  que  1'emission 
restat  tres-bornee." — [Chevalier,  La  Monnaie,  p.  675.] 


THEORY  OF  INCONVERTIBLE  PAPER  MONEY.  379 

any  new  onset  of  popular  passion,  or  in  the  face  of  a 
sudden  exigency  of  the  government.  From  this  danger 
a  people  receiving  into  circulation  an  Inconvertible  Pa- 
per Money  can  never  escape.  A  single  weak  or  reckless 
administration,  one  day  of  commercial  panic,  a  mere 
rumor  of  invasion,  may  hurl  trade  and  production  down 
the  abyss. 

"The  emitting  of  paper  money  by  the  authority  of 
the  Constitution,"  said  Mr.  Hamilton,  in  his  "Keport  on 
the  Bank,"  "is  wisely  prohibited  to  the  individual 
States  by  the  national  Constitution :  and  the  spirit  of 
that  prohibition  ought  not  to  be  disregarded  by  the  gov- 
ernment of  the  United  States.  Though  paper  emissions, 
under  general  authority,  might  have  some  advantages 
not  applicable,  and  be  free  from  some  of  the  disadvan- 
tages which  are  applicable,  to  the  like  emissions  by  the 
States  separately :  yet  they  are  of  a  nature  so  liable  to 
abuse,  and,  it  may  even  be  affirmed,  so  certain  of  being 
abused,  that  the  wisdom  of  the  government  will  be 
shown  in  never  trusting  itself  with  the  use  of  so  seduc- 
ing and  dangerous  an  expedient.  ...  In  great  and 
trying  emergencies  there  is  almost  a  moral  certainty  of 
its  becoming  mischievous.  The  stamping  of  paper  is 
an  operation  so  much  easier  than  the  levying  of  taxes, 
that  a  government,  in  the  practice  of  paper  emissions, 
would  rarely  fail  in  any  such  emergency  to  indulge  itself 
too  far  in  the  employment  of  this  resource." 

6.  Not  only  does  the  danger  of  overissue  never  cease 
to  menace  a  community  having  such  money  in  circula- 
tion, but  the  moment  an  overissue  in  fact  occurs,  the 
impulse  to  excess  acquires  violence  by  indulgence.  The 
reason  is  obvious.  To  metallic  money  the  formula  of 
supply  and  demand  applies.  Demand  creates  supply : 
supply  satisfies  demand.  If  metallic  money  is  brought 


380  MONEY. 

in  excess  into  any  country,  it  runs  off.  Paper  money 
cannot  run  off.  It  makes  a  swamp  wherever  it  is  poured 
out.  There  is  no  outlet  for  such  money.  When  in  ex- 
cess, prices  rise,  and  may  rise  indefinitely  without  being 
corrected  by  international  commerce.  Consequently 
the  government  which  has  issued  jmper  money  as  a 
measure  of  resource  soon  finds  its  necessities  increas- 
ing. It  has  to  purchase  services  and  supplies  at  higher 
rates.  Soon  speculation  sets  in  ;  "  forestalling  "  and 
"  engrossing  "  begin  to  operate  on  the  stock  of  the  nec- 
essaries of  life,  and  prices  rise  more  and  more  rapidly. 

President  White  thus  remarks  upon  the  second  issue 
of  assignats  in  Revolutionary  France :  "In  this  compara- 
tive ease  of  a  new  issue  is  seen  the  action  of  a  law  in 
finance  as  certain  as  the  action  of  a  similar  law  in  nat- 
ural philosophy.  If  a  natural  body  be  allowed  to  fall 
from  a  height,  in  obedience  to  gravitation,  its  velocity  is 
accelerated,  by  a  well-known  law  in  physics,  in  a  con- 
stantly increasing  ratio :  so  in  issues  of  irredeemable 
currency,  in  obedience  to  the  theories  or  interests  of  a 
legislative  body,  or  of  the  people  at  large,  there  is  a  nat- 
ural law  of  rapidly  increasing  issue  and  depreciation.1 
.  .  .  .  Nearly  all  Frenchmen  now  became  desper- 
ate optimists,  declaring  that  inflation  is  prosperity. 

1  "  Une  inevitable  fatalite  pousse  les  gouvernements  qui  en  font 
usage  vers  1'abus ;  car  le  papier-monnaie  est  toujours  cree  dans  des 
moments  de  crise  ou  les  ressources  ordinaires  sont  insuffisantes  et  un 
premier  exces  dans  1'emission  du  papier,  rendu  necessaire  par  des 
depenses  excessives,  amene  la  depreciation  qui  entraine  une  diminu- 
tion correspondante  du  produit  des  impots ;  cela  oblige  le  gouverne- 
ment  a  de  nouvelles  emissions  pour  augmenter  ses  ressources  en 
compensant  le  deficit  de  recette,  et  ainsi  de  suite  jusqu'a  ce  que  la 
valeur  du  papier-monnaie  soit  tombee  a  ze*ro,  ce  qui  correspond  a,  la 
banqueroute  universelle." — [Ch.  le  Hardy  de  Beaulieu.] 


THEORY  OF  INCONVERTIBLE  PAPER  MONEY.  381 

Throughout  France  there  came  temporary  good  feeling. 
The  nation  was  becoming  fairly  inebriated  with  paper 
money.  The  good  feeling  was  that  of  a  drunkard  after 
his  draught;  and  it  is  to  be  noted,  as  a  simple  histor- 
ical fact,  corresponding  to  a  physiological  fact,  that,  as 
the  draughts  of  paper  money  came  faster,  the  periods 
of  succeeding  good  feeling  grew  shorter." 

It  will  have  been  observed  that  the  instances  among 
those  given  in  Chapters  XV  and  XYI,  where  continence 
in  issue  was  most  conspicuously  exhibited,  were  those  of 
the  Bank  of  England  during  the  Eestriction,  and  the 
Bank  of  France  in  1848,  and  again  from  1871  to  the 
-present  time.  No  one,  I  think,  can  question  that  the 
prudence  and  self-restraint  here  shown  were  due  to  the 
fact  that,  in  the  case  of  neither  Bank,  did  the  issues  in- 
ure directly  to  the  benefit  of  the  government,  whatever 
the  exigencies  of  state.1 

"Real  money,"  said  Edmund  Burke,  "can  hardly 
ever  multiply  too  much  in  any  country,  because  it  will 
always,  as  it  increases,  be  a  certain  sign  of  the  increase 
of  trade,  of  which  it  is  the  measure,  and,  consequently, 
of  the  soundness  and  vigor  of  the  whole  body.  But 
this  paper  money  may  and  does  increase  without  any 
increase  of  trade,  nay  often,  when  trade  greatly  declines, 

1  One  of  the  most  amusing  things  to  be  found  in  that  eminently 
amusing  serial,  the  "  Congressional  Globe,"  is  the  remark  of  Mr.  J.  B. 
Alley,  of  Massachusetts,  in  his  speech  in  favor  of  the  Legal-tender 
Act  of  1862 :  "  There  can  be  no  more  issues  than  the  real  necessities  of 
the  government  require.  The  government  cannot  make  issues,  like  the 
banks,  for  profit.  Its  issues  must  necessarily  be  limited  to  its  absolute 
wants.'1  There  is  every  reason  to  believe  that  the  issues  of  the  Con- 
tinental Congress  and  the  French  Revolutionary  Assembly  were 
limited  to  the  absolute  wants  of  the  government,  and,  in  fact,  fell  con- 
siderably short  of  supplying  those  wants. 

32* 


382  MONEY. 

for  it  is  not  the  measure  of  the  trade  of  the  nation,  but  of  the 
necessity  of  its  government,  and  it  is  absurd  and  must  he 
ruinous,  that  the  same  course  which  naturally  exhausts  the 
wealth  of  a  nation,  should  likewise  be  the  only  productive 
cause  of  money." 

"There  has  never  been  a  government  yet,"  says  Prof. 
Perry,  in  his  "  Elements  of  Political  Economy,"  "  of  the 
many  which  have  issued  irredeemable  paper,  which  had 
the  wisdom  and  firmness  to  resist  for  any  great  length 

of  time  the  strong  temptation  to  overissues 

When  once  the  press  is  set  at  work,  it  must  work  on 
with  livelier  speed ;  because  just  in  the  ratio  of  the  de- 
preciation is  the  greater  amount  required." 

7.  It  must  not  be  thought  that  where  the  excess  of 
inconvertible  paper  is  small,  the  effects  on  trade  and 
production  are  therefore  slight.  In  no  degree  whatever 
can  the  money  of  any  commercial  community  depart 
from  the  money  in  which  international  balances  are  dis- 
charged, without  inducing  obstruction  and  creating  ap- 
prehensions to  which  modern  trade,  with  its  highly  de- 
veloped and  sensitive  organization,  will  not  subject  it- 
self, or  will  do  so  only  on  the  payment  of  a  heavy  fine 
on  the  part  of  the  community  offending. 

"  The  circulating  medium  of  a  commercial  commu- 
nity," said  Mr.  Webster,  in  his  speech  on  the  Bank  Bill 
of  1815,  "  must  be  that  which  is  also  the  circulating 
medium  of  other  commercial  communities,  or  must  be 
capable  of  being  converted  into  that  medium  without 
loss.  It  must  be  able,  not  only  to  pass  in  payments 
and  receipts  among  individuals  of  the  same  society  and 
nation,  but  to  adjust  and  discharge  the  balance  of  ex- 
changes between  different  nations." 

We  have  seen  with  what  sagacity  the  Management  of 
the  Bank  of  France  since  1871  have  succeeded  in  pre- 


THEORY  OF  INCONVERTIBLE  PAPER  MONEY.  383 

venting  any  considerable  discount  upon  their  notes 
when  exchanged  for  gold.  Yet  Mr.  Bagehot,  in  his 
work,  "Lombard  Street,"  remarks:  "The  note  of  the 
Bank  of  France  has  not,  indeed,  been  depreciated 
enough  to  disorder  ordinary  transactions.  But  any  de- 
preciation, hoivever  small,  even  the  liability  to  depreciation, 
imthout  its  reality,  is  enough  to  disorder  exchange  transac- 
tions. They  are  calculated  to  such  an  extremity  of  fine- 
ness that  the  change  of  a  decimal  may  be  fatal,  and  may 
turn  a  profit  into  a  loss.  Accordingly  London  has  be- 
come the  sole  great  settling-house  of  exchange  transac- 
tions in  Europe,  instead  of  being,  as  formerly,  one  of 
two." 

8.  When,  however,  an  Inconvertible  Paper  Money  is 
issued  in  marked  excess,  and  hence  becomes  depreciated 
and  fluctuating,  the  most  disastrous  consequences,  in- 
dustrially and  socially,  must  ensue.1 

A  depreciated  paper  money  is  always  a  fluctuating  money. 
This  is  so  for  two  reasons :  (a)  The  demand  for  money 
in  any  community  undergoes  a  continual  variation. 
This  is  seen  in  the  almost  perpetual  bullion-movement 
to  and  from  countries  having  a  metallic  or  a  convertible 
paper  money.  The  volume  of  money  never  stands  at  a 
mean.  It  is  in  incessant  motion,  like  the  waters  of  the 
sea,  now  rising,  now  falling,  on  every  shore.  It  is  only  by 
the  freedom  of  this  movement  that  steadiness  in  values 
is  obtained.  An  Inconvertible  Paper  Money,  however, 
as  we  have  seen,  has  no  outlet  through  foreign  trade,  and 
fluctuation  in  its  value  is  therefore  inevitable,  (b)  The 

"  Quanquam  innumere  pestes  sunt  quibus  regna,  principatus  et 
respublice  decrescere  sclent,  hsec  tamen  quatuor  (meo  judicio)  potis- 
sime  sunt:  discordia,  mortalitas,  terre  sterilitas  et  monete  vilitas." — 
[Copernicus,  Monete  Cudende  Ratio.] 


384  MONEY. 

fact  of  depreciation  creates  a  prejudice  against  this  form 
of  money  which  impairs  its  circulation,  as  has  been 
previously  noted,1  but,  in  doing  this,  acts  very  irregu- 
larly, according  to  popular  rumor,  the  issue  of  battles, 
the  prospects  of  alliances,  the  results  of  elections.  The 
operation  of  causes  like  these  can  clearly  be  seen  in  the 
table  of  the  depreciation  of  the  United  States  legal  ten- 
der, 1862-6,  which  appears  on  p.  374.  M.  Courcelle- 
Seneuil  has  noted  that  the  market  price  of  the  paper 
money  of  the  Eevolution  was  nearly  as  much  affected 
by  political  events  as  by  the  extent  of  the  issues.2 

A  money  of  inconvertible  paper  being  thus  at  once 
depreciated,  as  compared  with  specie,  and  fluctuating 
in  its  power  to  purchase  commodities  in  general,  be- 
comes a  grievous  tax  upon  production ;  while  if  it  gives 
to  trade  for  a  time  excessive  profits  at  the  expense  of 
consumers,  only  does  so  by  making  exchange  highly 
speculative,  putting  all  the  sober  virtues  at  a  disadvan- 
tage, generating  wasteful  habits  of  transacting  business, 
and  in  the  result  dividing  the  increased  profits  among  a 
larger  number  of  shops  and  stands. 

It  is,  however,  upon  the  condition  of  the  laboring 
classes  that  a  fluctuating  paper  money  works  its  worst 
effects. 

"The  very  man  of  all  others,"  said  Mr.  Webster, 
"  who  has  the  deepest  interest  in  a  sound  currency,  and 
who  suffers  most  by  mischievous  legislation  in  money 
matters,  is  the  man  who  earns  his  daily  bread  by  his 
daily  toil.  A  depreciated  currency,  sudden  changes  of 
prices,  paper,  money  falling  between  morning  and  noon, 
and  falling  still  lower  between  noon  and  night,  these 

1  See  p.  279. 
2  Operations  de  Banque,  p.  372. 


THEORY  OF  INCONVERTIBLE  PAPER  MONEY.  385 

things  constitute  the  very  harvest  time  of  speculators, 
and  of  the  whole  race  of  those  who  are  at  once  idle  and 

crafty But  the  laboring  man,  what  can  he 

hoard  ?    Preying  on  nobody  he  becomes  the  prey  of  all." 

And  on  another  occasion  the  same  great  statesman 
said:  "A  disordered  currency  is  one  of  the  greatest 
political  evils.  It  undermines  the  virtues  necessary  for 
the  support  of  the  social  system  and  encourages  pro- 
pensities destructive  to  its  happiness.1  It  wars  against 
industry,  frugality  and  economy,  and  it  fosters  the  evil 
spirits  of  extravagance  and  speculation.  Of  all  the  con- 
trivances for  cheating  the  laboring  classes  of  mankind, 
none  has  been  more  effectual  than  that  which  deludes 
them  with  paper  money.  This  is  the  most  effectual  of 
inventions  to  fertilize  the  rich  man's  fields  by  the  sweat 
of  the  poor  man's  brow. 

"Ordinary  tyranny,  oppression,  excessive  taxation, 
these  bear  lightly  on  the  happiness  of  the  mass  of  the 
community,  compared  with  fraudulent  currencies  and 
the  robberies  committed  by  a  depreciated  paper." 

Of  the  exceptional  disadvantages  which  the  laborer 
experiences  through  the  use  of  a  fluctuating  paper  mon- 
ey, I  may  perhaps  offer  here  the  explanation  I  have 
given  in  another  place : 2  In  the  competition  which  the 
laborer  has  incessantly  to  maintain,  both  with  his  em- 
ployer and  his  fellow-laborers,  his  interest  will  not  come 
to  him,  he  must  go  to  it,  and  to  do  so  he  must  be  able 
to  identify  it  and  locate  it  with  precision  and  assur- 

1  Under  date  of  October  25,  1810,  M.  Montalivet,  Napoleon's  Min- 
ister of  the  Interior,  writes  to  the  prefects : 

"  La  papier-monnaie  est  consideree  par  TEmpereur  comme  le  plus 
grand  fleau  des  nations,  et  comme  etant  ail  moins  au  moral,  ce  que 
la  peste  est  au  physique." 

2  The  Wages  Question.  '  . 

33 


386  MONEY. 

ance.  With  bad  money  in  circulation,  the  laborer,  in 
making  his  demand  on  his  employer  for  wages,  must 
follow  blindly  around  after  prices,  guided  only  by  a 
general  sense  of  the  inadequacy  of  what  he  is  at  pres- 
ent receiving.  Acting  without  intelligence,  it  is  a  matter 
of  course  that  his  interests  are  in  some^degree  sacrificed. 

It  was  in  view  of  this  inability  of  the  laboring  classes, 
through  poverty,  ignorance,  and  inertia,  to  meet  sudden 
and  violent  changes  of  condition,  that  Mr.  Mill  assigned 
to  "Custom"  in  economics  the  same  beneficent  function 
which  it  has  performed  in  government,  as  "the  most 
powerful  protector  of  the  weak  against  the  strong." 
Usage,  habit,  constitute  a  barrier  which  in  a  degree 
preserves  the  economically  weak  from  the  hustlings  and 
jostlings  of  the  market-place,  and  gives  them  room  to 
stand.  A  fluctuating  paper  money  breaks  down  this 
barrier  and  involves  all  classes  in  a  furious  and  inces- 
sant struggle,  in  which  the  feeblest  are  sure  to  go  down 
and  be  trampled  on. 

But  it  is  not  alone  in  competition  with  the  employer 
that  the  laborer  is  put  at  a  disadvantage.  If  it  is  diffi- 
cult for  him  to  secure  the  adjustment  of  his  wages  to 
the  varying  cost  of  living,  much  more  difficult  is  it  for 
him  to  hold  his  own  in  the  contest  with  the  retail  deal- 
er. He  expends  his  earnings  in  hundreds  of  small  pur- 
chases. If  those  earnings  come  to  him  in  depreciated 
paper,  and  are  to  be  expended  in  commodities  at  inflat- 
ed prices,  how  can  he  tell  what  he  ought  to  pay  per 
pound,  per  bushel,  or  per  yard?  -He  knows  nothing 
about  the  conditions  of  the  production  of  the  articles  he 
purchases,  and  has  no  longer  a  traditional  price  to 
guide  him.  Formerly,  if  an  article  of  domestic  con- 
sumption rose,  he  was  in  the  mood  to  resist  the  advance. 
He  disputed  the  higher  price ;  he  alleged  the  custom- 


THEORY  OF  INCONVERTIBLE  PAPER  MONEY.  387 

ary  price ;  lie  held  off  buying ;  lie  inquired  elsewhere. 
With  a  community  in  this  temper,  retail  prices  will  not 
be  wantonly  advanced ;  nothing  less  than  a  substantial 
reason  will  succeed  in  establishing  a  new  price,  and 
that  new  price  will  be  kept  down  to  something  like  the 
necessity  of  the  case. 

With  bad  money,  however,  this  hold  of  the  retail 
buyer  upon  customary  price  is  broken.  The  laborer 
loses  his  reckoning.  When  prices  go  up,  he  cannot 
judge  where  they  should  stop.  After  finding  advance 
upon  advance  established,  in  spite  of  his  questioning 
and  complaints,  he  becomes  discouraged.  He  pays 
without  dispute  whatever  the  shop-keeper  demands. 
Then  it  is  the  retail  dealer  gathers  his  largest  profits 
and  works  his  worst  extortions. 


But  one  question  remains  under  this  department  of 
our  subject :  Does  the  premium  on  goldjin_a^  country 
having  Inconvertible  Paper  Sidney  measure  the  depre- 
ciation? This. is  perhaps  the  most  difficult  question  in 
the  theory  of  Money. 

"There  is  for  me,  I  confess,"  says  Prof.  Price,  "a  cer- 
tain obscurity  as  to  the  law  which  regulates  the  depre- 
ciation of  inconvertible  notes." 

On  the  one  hand,  it  is  difficult  to  see  how,  in  any  de- 
gree of  consistency  with  Mr.  Eicardo's  law  of  the  distri- 
bution of  the  precious  metals,  it  should  be  otherwise 
than  that  the  premium  on  gold  measures  the  deprecia- 
tion of  the  paper.  On  the  other,  it  seems  almost  im- 
possible, in  the  face  of  facts,  to  accept  the  doctrine  as 
applied  to  England,  1819-21,  or  to  the  United  States, 
1865-8.  All  the  statistical  tables,  showing  the  prices  of 
commodities,  which  are  accessible,  seem  to  prove  that 


388  MONEY. 

the  power  of  the  paper  to  purchase  commodities  in  gen- 
eral was,  in  the  instances  referred  to,  much  further  di- 
minished than  its  power  to  purchase  gold. 

Mr.  Mathias  Attwood,  the  leader  of  the  "Birming-, 
ham,"  or  Inflation  School,  in  England,  1823  to  1832; 
thus  undertook  to  explain  the  matter  ^ 

"  In  a  rise  of  prices  occasioned  by  the  exclusive  use 
of  paper  money,  the  great  demand  for  bullion,  that  for 
circulation,  ceases  at  once.  The  bullion  market  then 
receives  supplies  from  the  quarter  whence  previously 
its  principal  demand  originated.  In  the  same  manner, 
when  a  metal  standard  is  again  resorted  to,  a  new  de- 
mand for  gold  at  once  takes  place,  precisely  at  that 
moment  when,  in  consequence  of  a  contraction  of  the 
general  demand  for  money,  a  reduced  demand  exists  for 
all  other  commodities.  Gold  bullion,  consequently,  is, 
of  all  commodities,  the  last  and  the  least  to  rise  in  a 
general  rise  of  prices  occasioned  by  the  depreciation  of 
paper  money,  and  the  last  and  the  least  to  fall  in  a  gen- 
eral fall  of  prices  occasioned  by  the  restoration  of  that 
depreciation." 

The  former  part  of  this  paragraph  is  true,  and  would 
serve  to  explain  a  temporary  divergence  extending 
through  a  few  months  following  the  act  of  suspension, 
o'r  of  resumption;  but  it  is  difficult  to  see  how,  upon 
accepted  principles,  this  failure  of  gold  to  follow  other 
commodities,  in  either  the  general  rise  or  the  general 
fall,  could  be  protracted  through  a  period  of  years.  We 
may  readily  admit  that  gold  rises  last,  but  why,  in  the 
long  run,  least?  After  time  has  been  given  for  the  re- 
adjustment, through  the  ordinary  operations  of  trade, 
why  does  not  gold,  if  it  remains  below  its  value  in  the 
country  having  a  depreciated  currency,  flow  abroad 
where  its  power  in  exchange  is  greater? 


RATIO  OF  DEPRECIATION-.  389 

One  item,  indeed,  we  find,  which  accounts,  in  a  certain 
degree,  for  the  failure  of  gold  to  rise  in  price  correspond- 
ently  to  other  commodities,  under  Inconvertible  Paper 
Money.  The  former  demand  for  gold  was  made  up  of 
the  occasions  for  its  use  in  all  commercial  countries,  in- 
cluding that  which  has  now  discarded  it.  The  use  of  it 
in  that  country  being  abandoned,  the  total  demand  is  so 
far  diminished,  and  until  the  supply  has  been  reduced 
by  the  very  gradual  process  of  consumption,  the  value 
of  each  portion  must  fall.  But  this  cause  would,  at  the 
most,  be  sufficient  to  produce -only  a  small  part  of  the 
effect  to  be  accounted  for  in  the  cases  immediately  un- 
der consideration. 

An  explanation,  somewhat  similar  to  Mr.  Attwood's, 
was  offered  by  Mr.  J.  S.  Ropes,  in  a  paper  published  in 
'  the  proceedings  of  the  "American  Social  Science  Asso- 
ciation."—[Vol.  V.] 

"  Gold  has  been  practically  deprived  of  its  chief  func- 
tion in  the  community,  and,  like  all  other  commodities 
under  similar  circumstances,  its  exchangeable  value  has 
been  greatly  depreciated.  We  may  illustrate  this  by 
the  supposition  that  our  government  had  been  able  and 
willing  to  make  and  strictly  enforce  a  law  prohibiting 
the  use  of  wheat,  in  any  form,  for  food.  Can  any  one 
doubt  that  in  such  a  case  the  price  of  flour  would  be 
greatly  depressed,  and  that  it  would  depend  chiefly 
upon  the  demand  in  foreign  countries  for  whatever  ex- 
changeable value  it  might  retain." 

What  Mr.  Eopes  here  adduces  is  true,  and  would  be 
sufficient  to  account  for  a  divergence  such  as  we  are 
inquiring  about,  extending  through  a  certain  period  of 
re-adjustment.  If,  to  take  his  illustration,  government 
were  to  prohibit  the  use  of  wheat  for  food  in  the  United 
States,  the  price  here  of  flour  would  doubtless  be  greatly 


390  MONEY. 

depressed  for  a  time,  until  the  existing  stock  had  been 
shipped  to  a  better  market,  or  had  moulded  in  store. 
But  why  should  wheat  thereafter  be  produced  at  all, 
except  at  prices  corresponding,  (expenses  of  transporta- 
tion being  considered)  to  those  ruling  abroad? 

So  of  gold;  the  fact  that  the  United  States,  in  1862, 
discarded  the  use  of  gpld  coin  as  the  -general  money  of 
commerce,  retaining  it  for  specific  uses  only,  viz.,  in  pay- 
ments at  the  Treasury,  inwards  for  customs-dues,  out- 
wards for  interest  on  the  public  debt,  afforded  a  reason 
for  a  lowering  of  the  purchasing  power  of  gold  here  suf- 
ficient to  drive  a  portion  of  the  existing  supply  abroad. 
It  also  afforded  a  reason  for  a  permanent  depression  in 
the  purchasing  power  of  gold,  the  world  over,  so  far  as 
might  be  involved  in  a  reduction  of  the  general  demand 
for  gold  through  the  cessation  of  the  United  States'  de- 
mand for  it.  But  beyond  this,  it  is  difficult  to  see  any 
virtue  in  the  explanation  offered.  Why  should  this  ac- 
tion of  the  United  States  government,  in  1862,  diminish 
the  purchasing  power  of  gold  in  Boston  or  New  York, 
in  1865,  or  1873? 

There  certainly  appears  to  be  an  effect  on  prices,  in 
countries  having  a  depreciated  paper  money,  not  ac- 
counted for  by  the  premium  on  gold.  The  belief  seems 
to  be  quite  general  among  intelligent  persons,  many  of 
them  familiar  with  the  principles  of  economics,  that  the 
premium  on  gold  does  not  measure  the  advance  of  gen- 
eral prices.  Fully  agreeing  with  Prof.  Price  as  to  the 
obscurity  which  still  rests  on  this  subject,  I  can  only 
suggest,  first,  that  the  time  required  for  the  international 
re-adjustment  of  the  precious  metals,  after  any  disturb- 
ance of  supply  and  demand,  may  be  longer,  much  longer, 
than  it  has  been  commonly  believed  to  be,  the  friction 
and  inertia  of  trade  extending  that  re-adjustment  over 


RATIO  OF  DEPRECIATION.  391 

considerable  intervals,  and  giving  to  the  local  values  of 
gold  and  silver  a  degree  of  persistency  attributed  to 
them  by  few  economical  writers ;  secondly,  that  the  sta- 
tistics of  prices,  which  we  have  to  use  in  the  investiga- 
tion of  this  subject,  are  not  fairly  representative  of  the 
whole  body  of  commodities  and  services  to  be  exchanged 
through  the  use  of  money,  and  .thus,  that  while  the 
prices  of  the  commodities  ordinarily  taken  for  the  pur- 
poses of  this  comparison  are  enhanced  considerably 
above  the  price  of  gold,  in  paper,  other  large  bodies  of 
commodities  and  services,  riot  easily  to  be  embraced 
in  such  computations,  have  experienced  a  less  consider- 
able rise,  tending  to  establish  an  average  of  general 
prices  approximating  the  price  of  gold. 


PART    III. 

CONVERTIBLE  PAPER  MONEY. 


CHAPTEE  XVHI. 

THE  THEORY  OF  CONVERTIBLE  PAPER  MONET. 

WE  saw,  in  opening  the  subject  of  Inconvertible  Pa- 
per Money,  that  objection  exists  on  the  part  of  many, 
perhaps  most,  economists  to  the  use  of  the  word  Money 
except  in  connection  with  "a  material  recompense  or 
equivalent" — gold,  silver  or  copper,  or  grains  and  seeds, 
or  living  money, — articles  having,  as  the  phrase  is,  val- 
ue in  themselves,  independently  of  convention. 

It  would  at  first  seem  that  this  objection  would  have 
less  force  in  application  to  paper  convertible  at  pleasure 
into  coin.  But  on  the  contrary,  we  noted  that  Mr. 
Huskisson  and  Prof.  Storch,  who  admit  the  use  of  the 
term,  paper  money,  as  applied  to  irredeemable  govern- 
ment issues,  reprehend  its  use  in  reference  to  paper  is- 
sued by  bankers,  promissory  of  coin  and  convertible  at 
the  pleasure  of  the  holder.  In  this  these  economists 
are  generally  followed  by  recent  writers.  Hence  the 
wide  adoption  of  the  word  Currency,1  which  Mr.  Mc- 

1  "  La  langue  anglaise  a  un  mot  generique  qui  embrasse  la  mon- 
naie,  le  billet  de  banque,  le  papier-monnaie,  ou  assignat,  non  convert- 
ible en  especes,  le  cheque  et  toute  autre  espece  de  titres  qu'on  pent 
mettre  dans  la  circulation  et  qu'accepte  plus  ou  moins  le  commun  des 
hommes;  c'est  le  mot  de  Currency.  Notre  langue  n'en  offre  pas 
1'equivalent  parfait." — [Chevalier,  La  Monnaie,  p.  64.] 


396  MONEY. 

Leod  denounces  as  a  "Yankeeism,"  though  he  seems  to 
think  that  the  term  has  passed  into  too  general  use  to 
be  now  extruded  on  either  philological  or  national 
grounds. 

On  the  same  side,  Mr.  Tooke  cites  Johnson's  Diction- 
ary— "  Money :  metals  coined  for  the  ^purposes  of  com- 
merce;" and  proceeds  to  remark:  "In  no  instance,  I  be- 
lieve, will  it  be  found  that  Mr.  Locke,  or  Mr.  Harris,  or 
even  the  first  Lord  Liverpool,  included  promissory  notes 
issued  by  banks  and  returnable  to  the  issuers,  at  the 
will  of  the  holder,  in  exchange  for  coin,  in  their  use  of 
the  word  Money.  .  .  .  The  Bullion  Report  of  1810 
affords  no  sanction  to  such  a  use  of  the  word." l — [Hist. 
of  Prices,  ii,  155.] 

It  would  be  wrong  to  say  that  definitions  are  of  small 
account  in  the  treatment  of  economical  questions,  yet, 
as  was  remarked  in  connection  with  our  discussion  of 
Inconvertible  Paper,  I  see  no  harm  in  the  use  of  the  term 
paper  money.  It  has  venerable  sanction,  for  Adam  Smith 
uses  it.  It  can  create  no  false  apprehensions,  for  the  ad- 
jective, or  component  word,  paper,  does  not  allow  it  to 
be  conceived  that  a  material  equivalent  or  recompense 
is  intended. 

Moreover,  it  appears  to  me,  I  confess,  that  the  usual 

1  The  French  writers,  MM.  Jos.  Gamier  and  Courcelle-Seneuil, 
make  a  distinction  between  paper  money  and  money  of  paper.  By 
the  former  term  they  embrace  government  issues,  resting  upon  au- 
thority ;  by  the  latter,  bank-notes,  resting  upon  confidence : 

"Les  billets  de  banque,  payable  a  vue  et  au  porteur,  sont  de  la 
monnaie  de  papier;  ils  ne  sont  point  du  papier-monnaie.  On  a 
reserve  ce  nom  a  des  titres  sur  lesquels  le  gouvernement  qui  les  emet 
ou  qui  autorise  leur  Emission,  n'a  stipule  aucune  promesse  de  rem- 
boursement,  ou  n'a  stipule  que  des  promesses  auxquelles  il  a  manque*." 
— [Courcelle-Seneuil,  Operations  de  Banque,  p.  370.] 


BANK-NOTES  ARE  MONEY.  397 

objection  to  the  word  Money,  as  applied,  even  without 
qualification,  to  paper,  fails  to  note  a  point  of  vital  im- 
portance in  the  connection.  It  is  said  that  the  bank- 
note is  a  form  of  credit.1  But  do  we  not  here  overlook 
the  distinction  between  the  relation  of  the  buyer  to  the 
seller,  where  the  bank-note  is  employed,  and  the  relation 
of  the  holder  of  the  note  to  its  issuer  ?  As  between  the 
buyer  and  the  seller,  a  bank-note  is  money,  if  it  is  ac- 
cepted in  final  payment  of  goods,  or  discharge  of  debts, 
without  recourse  to  the  person  from  whom  it  is  received. 
As  between  the  holder  and  the  issuer,  it  remains  a  form 
of  credit,  and  is  required  to  be  redeemed  upon  demand, 
in  specie.  Is  it,  however,  the  relation  of  the  holder  to 
the  issuer,  or  the  relation  of  the  buyer  to  the  seller, 
which  determines  the  influence  the  note  shall  have  upon 
prices?  Clearly,  the  latter.  And  it  is  the  influence  of 
the  bank-note  on  prices  with  which  we  are  concerned. 
The  question  of  final  payment,  as  between  the  holder 
and  the  issuer,  is  a  banking  question.  So  long  as  the 
paper  passes  from  hand  to  hand  and  is  accepted,  wheth- 
er with  or  without  force  of  law,  by  the  creditor  in  final 
discharge  of  debts,  or  by  the  seller  in  full  payment  for 
goods,  without  further  resort,  in  theory  or  in  practice,  to 
the  buyer  or  the  debtor,  I  am  disposed  to  think  it  must 
be  deemed  to  be  money.  It  may  be  good  money.  It 
may  be  bad  money.  But  in  its  universal  acceptability, 
however  obtained  ;  in  the  fact  of  its  general  currency  as 
a  medium  of  exchange,  we  have  the  single  condition  of 
money  realized.  This  was  the  position  of  Col.  Torrens 
in  his  work  on  the  English  Bank  Act  of  1844.  The 

1  Thus  Prof.  Price  says  that  bank-notes  "  stand  on  a  level  with 
the  entries  in  a  shop-keeper's  books.  They  are  matters  of  account — 
debts  whose  payment  is  deferred." — [Principles  of  Currency,  p.  178.] 

34 


398  MONEY. 

same  view  of  the  bank-note  was  taken  by  M.  Wolowski 
in  his  work,  "La  Question  des  Banques,"  and  by  Mr. 
Nicholson  in  his  work,  "  The  Science  of  Exchanges." l 

A  bank-note,  so  long  as  its  currency  remains,  serves 
as  the  medium  of  exchange :  it  serves  as  the  standard 
for  deferred  payments,  precisely  as^the  piece  of  gold 
which  it  replaces  in  circulation :  and  if  anything  serves 
as  a  common  measure  of  value,2  it  is  the  paper  that  does 
so,  and  not  the  thing  promised  by  the  paper.3  For 
these  reasons  I  see  no  objection  to  the  use  of  the  word 
Money,  as  applied  to  bank-notes  or  convertible  paper. 

But  it  is  said,  if  bank-notes  are  money,  why  are  not 
checks  money? 

Simply  because  checks  are  a  form  of  credit,  both  be- 
tween the  holder  and  the  issuer  and  between  the  buyer 
and  the  seller ;  while,  between  the  buyer  and  the  seller, 
the  bank-note,  as  has  been  remarked,  is,  in  effect,  final 

1  "  Nous  oroyons  que  si  Ton  tient  compte  des  resultats  pratiques,  on 
reconnaitra  combien  la  distinction  etablie,  en  principe,  entre  la  mon- 
naie  et  le  billet,  s'efface  dans  la  circulation.     .     .     .     S'il  n'est  pas 
une  monnaie  dans  la  rigueur  scientifique  du  terme,  il  en  a  tous  les 
attributs." — [Wolowski.] 

"Bank-notes,  or  transferable  promises  to  pay  coin  to  bearer  on 
demand,  circulating  side  by  side  with  coin  in  endless  succession; 
liquidating  debts  like  coin,  and  which,  when  in  circulation,  all  busi- 
ness people  are,  as  it  were,  compelled  to  take,  are  absolutely  money." 
— [Nicholson.] 

2  On  this  point,  see  pp.  4-9 ;  280-90. 

3  This  was  the  argument  of  Lord  Mansfield :    "  Bank-notes  are 
not,  like  bills  of  exchange,  mere  securities  or  documents  for  debts, 
nor  are  so  esteemed,  but  are  treated  as  money  in  the  ordinary  course 
and  transaction  of  business,  by  the  general  consent  of  mankind ;  and 
on  payment  of  them,  whenever  a  receipt  is  required,  the  receipts 
are  always  given  as  for  money,  and  not  as  for  securities  or  notes." 
—[1  Burrows,  452-7.] 


BANK-NOTES  ARE  MONEY.  399 

payment.  Now,  it  is  not  the  relation  of  holder  and  issu- 
er, but  of  buyer  and  seller,  with  which  we  have  to  do  in 
the  theory  of  Money. 

I  say  the  bank-note  is,  in  effect,  final  payment,  as  be- 
tween buyer  and  seller.  In  the  English  law,  the  re- 
ceiver of  a  bank-note  has  a  limited  resort  to  the  person 
from  whom  he  takes  it,  in  case  the  bank  should  fail  be- 
fore it  had  been  in  his  (the  receiver's)  power  to  present 
it  for  pajonent.  "This  responsibility,  however,"  says 
Mr.  McCulloch,  "  seldom  exceeds  a  couple  of  hours,  and 
can  hardly,  in  any  case,  exceed  a  couple  of  days.  In 
practice  it  is  never  resorted  to,  and  every  one  is  thus  en- 
couraged, reckoning  on  the  facility  of  passing  it  to  an- 
other, to  accept  bank-paper,  'even  though  he  should 
doubt  the  ultimate  solvency  of  the  issuer.'"1 

This  characterization  by  Mr.  McCulloch  appeals  for 
its  correctness  to  the  observation  of  the  reader.  We 
take  bank-notes  with  no  other  scrutiny,  at  the  most, 
than  to  satisfy  ourselves  that  they  are  not  counterfeit. 
We  never  think  of  going  at  once  with  them,  or  sending 
them  by  an  agent,  to  the  place  of  issue,  to  demand  the 
coin,  in  order  that,  if  payment  should  be  refused,  we 
may  have  recourse  to  the  persons  from  whom  we  re- 
ceived them ;  and,  though  the  responsibility  of  the  per- 
son passing  the  note  expires  within  two  or  three  hours, 
or,  at  most,  within  two  or  three  days,2  we  hold  the  note 
for  days  or  weeks,  according  to  our  occasions  for  ex- 
penditure, and,  in  probably  ninety-nine  cases  out  of  a 


1  Mr.  McCulloch  here  quotes  Thornton  on  Paper  Credit. 

a  Indeed  it  has  .been  decided  in  several  States  of  the  American 
Union  that  the  acceptance  of  bank-notes  constitutes  a  sufficient 
payment,  even  though  the  bank  be  insolvent  at  the  time,  provided  the 
tender  was  made  by  the  debtor  or  purchaser  in  good  faith. 


400  MONEY. 

hundred,  we  should  be  wholly  unable  to  tell  from  whom 
we  received  any  particular  bill.1 

In  this  view,  the  bank-note,  while  it  remains  a  form  of 
credit,  as  between  the  holder  and  the  issuer,  effects  final 
payments  between  the  buyer  and  seller,  and  is  thus 
•money.2 

A  check,  on  the  other  hand,  is,  as' a  rule,  received  on 
the  credit  of  the  person  who  draws  it ;  has  a  circulation 
closely  limited  by  personal  or  business  acquaintance; 
passes  generally  by  successive  indorsements ;  its  history 
appears3  upon  its  face  and  upon  its  back;  and  it  thus 
remains  a  form  of  credit,  not  only  between  the  bank 
and  the  drawer,  but  between  buyer  and  seller,  in  all  the 
transactions  in  which  it  is  employed. 

The  above  distinction  fairly  leads  to  the  remark  that 
Circulation,  in  the  monetary  sense,  is  a  matter  of  degree.* 

1  Mr.  Francis  speaks  of  a  note  coming  in  to  the  Bank  of  England 
which  had  been  out  for  about  a  century  and  a  quarter. 

2  "Anything  which  freely  circulates  from  hand  to  hand,  as  a  com- 
mon acceptable  medium  of  exchange,  in  any  country  is,  in  such 
country,  money,  even  though  it  ceases  to  be  such,  or  to  possess  any 
value,  in  passing  into  another  country.     In  a  word,  an  article  is  de- 
termined to  be  money,  by  reason  of  the  performance  ly  it  of  certain 
functions,  without  regard  to  its  form  or  substance." — [Appleton's  Cy- 
clopaedia.] 

8  M.  Rossi,  though  preserving'  a  distinction  between  bank-notes 
and  money,  recognizes  as  of  great  importance  the  fact  that  bank- 
notes leave  no  trace  of  their  movement  from  hand  to  hand.  Thus, 
in  his  Report  of  1840  to  the  Chamber  of  Peers,  he  says  : 

"  Us  se  distinguent  de  tout  autre  billet  en  ce  que  le  porteur,  quel 
qu'ait  ete  le  nombre  des  intermediaires,  n'a  de  recours  que  centre  la 
Banque,  et  qu'il  ne  reste  pas  meme  de  trace  legale  des  nombreuses 
transmissions  qui  peuvent  s'etre  operees." 

4  M.  Chevalier  has  justly  remarked :  "  Lors  qu'on  traitera  de  pays 
differents,  il  sera  rationnel  et  opportun  de  classer  dans  la  currency, 
pour  quelques-uns,  des  titres  qui,  par  rapport  a  d'autres,  ne  sauraient 


BANK-NOTES  ARE  MONET.  401 

Bank-notes,  from  the  ill  repute  of  the  issuers,  might  con- 
ceivably become  of  such  slow,  difficult  and  limited  cur- 
rency, as  to  fall  out  of  the  category  of  money,  that  is, 
men  might  come  to  accept  them  only  as  subject  to  the 
responsibility  of  the  persons  tendering  them,  and  might 
carefully  observe  the  legal  conditions  of  enforcing  that 
responsibility,  keeping  a  record  of  persons,  places  and 
times,  carrying  the  matter  on  their  minds,  and  giving  up 
other  occupation  in  order  to  present  the  notes  prompt- 
ly, within  the  days  or  hours  necessary  to  get  to  the  place 
of  issue.  In  such  a  condition  of  the  public  mind,  bank- 
notes would  not  be  money.  On  the  other  hand,  checks 
might  be  so  drawn  and  authenticated  as  to  pass  in  cir- 
culation so  rapidly,  with  such  wide  acceptance,  with  so 
little  of  resort,  as  to  become  practically  money.  The 
same  test  should  be  applied  to  Bills  of  Exchange,  which 
are  asserted  by  Mr.  Fullarton  and  others  to  be  money 
in  the  same  sense  as  bank-notes.  Mr.  Fullarton  cites 
the  habit  of  Lancashire  and  the  West  Biding  of  York, 
and  some  other  manufacturing  districts  of  England, 
where  bills  of  exchange  were  employed  during  a  long 
series  of  years,  to  the  almost  total  exclusion  of  bank- 
notes, the  bills  being  drawn  for  all  sums  down  to  <£5. 

Mr.  McCulloch's  criticism  of  this  claim  is  in  the  main 
just.  "  Bills  are  almost  all  drawn  payable  at  some  dis- 
tant period,  and  those  into  whose  hands  they  come,  if 
they  be  not  in  want  of  money,  prefer  retaining  them  in 
their  possession,  in  order  to  get  the  interest  that  accrues 
upon  them.  But  the  principal  distinction  between  notes 
and  bills  is,  that  every  individual,  in  passing  a  bill  to 

etre  presentes  comme  dignes  de  cet  honneur,  et  investis  de  cette 
prerogative.  En  un  mot,  la  classification  dans  la  currency  est  un  fait 
relatif,  et  sujet  a  conditions,  et  non  pas  un  fait  absolu  et  general." — 
[La  Monnaie,  p.  669.] 


402  MONEY. 

another,  has  to  indorse  it,  and  by  doing  so  makes  him- 
self responsible  for  its  payment.  'A  bill  circulates,' 
says  Mr.  Thornton,  'in  consequence  chiefly  of  the  confi- 
dence placed  by  each  receiver  of  it  in  the  last  indorser, 
his  own  correspondent  in  trade,  whereas  the  circulation 
of  a  bank-note  is  owing  rather  to  the  circumstance  of 
the  name  of  the  issuer  being  so  well  known  as  to  give  it 
an  universal  credit.'  It  is  clear,  therefore,  that  a  great 
deal  more  consideration  is  always  required,  and  may  be 
fairly  presumed  to  be  given,  before  any  one  accepts  a 
bill  of  exchange  in  payment,  than  before  he  accepts  a 
bank-note.  The  note  is  payable  on  the  instant,  without 
deduction — the  bill  not  until  some  future  period;  the 
note  may  be  passed  to  another  without  incurring  any 
risk  or  responsibility,  whereas  every  fresh  issuer  of  the 
bill  makes  himself  responsible  for  its  value.  Notes 
form  the  currency  of  all  classes,  not  only  of  those  who 
are,  but  also  of  those  who  are  not  engaged  in  business, 
as  women,  children,  laborers,  etc.,  who  in  most  instances 
are  without  the  power  to  refuse  them,  and  without  the 
means  of  forming  any  correct  conclusion  as  to  the  solv- 
ency of  the  issuers.1  Bills,  on  the  other  hand,  pass 
only,  with  very  few  exceptions,  among  persons  engaged  in 
business,  who  are  fully  aware  of  the  risk  they  run  in 
taking  them." 

And  yet  I  should  not  wish  to  say  that  if  bills  of  ex- 
change were  made  for  small  amounts,  and  their  currency 
facilitated  by  exceptional  provisions,  so  that  the  public 
became  familiarized  with  their  use,  they  might  not  ac- 
quire, here  and  there,  now  and  then,  a  degree  of  facility 

1  The  German  economist,  Hartwig  Hertz,  as  quoted  by  M.  Wo- 
lowski,  dwells  particularly  on  this  feature  of  the  case,  that  persons 
taking  bank-notes  do  not,  and  in  fact  cannot,  verify  their  value. 


BANK-NOTES  ARE  MONEY.  403 

in  circulation,  and  an  indifference  to  the  question  of  re- 
course, which  would  give  them  the  quality  of  money. 

Indeed  there  is  something,  it  appears  to  me,  in  Mr. 
Tooke's  claim  that  the  larger  Bank  of  England  notes 
are  not  money,  in  the  sense  in  which  the  smaller  ones 
are.  The  difference  between  a  large  and  a  small  note, 
as  to  the  length  of  time  for  which  they  severally  re- 
main out,  the  freedom  with  which  they  are  taken,  and 
the  number  of  transactions  in  which  they  are  used,  is 
very  marked. 

The  life  of  a  bank-note1  in  days,  says  Prof.  Levi,  may 
be  taken  to  have  been  as  follows  : 

£5      £10      £20-100      £200-500      £1000 

1844     105       87  38  14  12 

1871       79        64  26  89 

— [Hist.  Br.  Commerce,  p.  481.] 

It  is  best,  perhaps,  to  treat  all  bank-notes  as  money 
for  purposes  of  economical  reasoning,  yet  we  should  not 
fail  to  recognize  the  consideration  that,  just  as  the  same 
amount  of  money  will  perform  a  greater  number  of  ex- 
changes in  the  same  time  in  one  country  than  in  another, 
so,  within  the  same  country  or  district,  the  same  amount 
of  bank-notes  of  one  denomination  may  perform  a  much 
greater  work  in  exchange  than  would  an  equal  amount 
in  other  denominations. 

Adam  Smith  has  shown  the  importance  of  this  dis- 
tinction. ".The  circulation  of  every  country,  may,"  he 
says,  "be  considered  as  divided  into  two  different 
branches,  the  circulation  of  the  dealers  with  one  another, 

"  The  Bank  of  England  never  re-issues  its  notes.  As  they  come 
in  they  are  laid  aside  and  kept  seven  years,  and  then  burned.  The 
whole  number  is  not  destroyed  together,  but  at  different  times,  and 
as  many  are  burned  as  correspond  with  the  new  notes  issued." — 
[Hankey  on  Banking,  p.  62.] 


404  MONEY. 

and  the  circulation  between  the  dealers  and  the  consum- 
ers. Though  the  same  pieces  of  money,  whether  paper  or 
metal,  may  be  employed  sometimes  in  the  one  circulation, 
and  sometimes  in  the  other,  yet,  as  both  are  constantly 
going  on  at  the  same  time,  each  requires  a  certain  stock 
of  money  of  one  kind  or  another  to  carry  it  on. 

"  Paper  money  may  be  so  regulated  as  either  to  con- 
fine itself  very  much  to  the  circulation  between  the  dif- 
ferent dealers,  or  to  extend  itself  likewise  to  a  great  part 
of  that  between  the  dealers  and  the  consumers.  Where 
no  bank-notes  are  circulated  under  ten  pounds  value,  as 
in  London,  paper  money  confines  itself  very  much  to  the 
circulation  between  the  dealers.  When  a  ten  pound 
bank-note  comes  into  the  hands  of  a  consumer,  he  is 
generally  obliged  to  change  it  at  the  first  shop  where  he 
has  occasion  to  purchase  five  shillings'  worth  of  goods, 
so  that  it  often  returns  into  the  hands  of  a  dealer  before 
the  consumer  has  spent  the  fortieth  part  of  the  money. 
Where  bank-notes  are  issued  for  so  small  sums  as  twenty 
shillings,  as  in  Scotland,  paper  money  extends  itself  to 
a  considerable  part  of  the  circulation  between  dealers 
and  consumers." — [Wealth  of  Nations,  i,  323.] 

Upon  these  paragraphs,  Mr.  Tooke  remarks :  "Adam 
Smith  is  the  first,  I  believe,  who  pointed  out  the  dis- 
tinction between  bank-notes  of  the  lower  denominations, 
which  served  chiefly  for  the  purposes  of  retail  trade, 
and  the  higher,  which  were  in  use  principally  between 
dealers  and  dealers.1  The  higher  ones  do  not  circulate 

1  Mr.  Hubbard,  Governor  of  the  Bank  of  England,  1853-5,  testified 
before  the  Committee  of  1857,  that  within  the  five  years  preceding, 
an  addition  of  £2,000,000  had  been  made  to  the  circulation  of  £5  and 
£10  notes,  and  an  equal  diminution  had  taken  place  in  £50  to  £1000 
notes,  the  aggregate  issues  remaining  unchanged  but  the  purchasing 
power  being  increased  by  the  substitution. 


AIONEY  IS 


wen  among  dealers,  excepting  cattle-dealers  and 
horse-dealers,  having  been  superseded  by  a  general  use 
of  banking  accommodations,  and  consequently  by  checks 
and  book  credits."—  [History  of  Prices,  1839-47,  p.  159.] 

Not  only  have  bills  of  exchange  and  checks  been  held 
by  many  writers  to  be  money  in  the  same  sense  as 
bank-notes,  but  bank  deposits  have  been  embraced  in 
the  same  category,1  on  the  ground  that  they  are  used  to 
discharge  debts  and  purchase  commodities,  and  that 
they  thus  perform  the  functions  of  money.  But  nothing 
can  perform  the  functions  of  money  which  is  not  money, 
for,  as  we  have  seen,  an  article  is  determined  to  be 
money  solely  by  reason  of  its  performance  of  certain 
functions.  Money  is  that  which  passes  from  hand  to 
hand  in  final  discharge  of  debts  and  full  payment  for 
goods.  The  bank-deposit  system  allows  the  mutual 
cancellation  of  vast  bodies  of  indebtedness  which  would, 
without  this  agency,  require  the  intervention  of  an  act- 
ual medium  of  exchange  ;  but  deposits  are  not  such  a 
medium.  In  a  word,  deposits,  like  every  other  form  of 
credit,  save  the  use  of  money  ;  they  do  not  perform  the 
functions  of  money.  Money  is  that  Money  does. 

There  seems  to  be  little  reason  to  question  that  Ex- 
chequer Bills,  as  they  are  called  in  England,  or  Treas- 
ury Notes,  as  they  have  been  known  in  the  United 
States,  being  acknowledgments  of  the  Exchequer,  or 
Treasury,  which  are  received  in  payment  of  taxes,  may, 
if  issued  in  small  sums,  serve  as  money,  passing  from 

1  This  view  is  maintained  by  Mr.  Condy  Raguet  (Currency  and 
Banking,  pp.  191-4),  and  Prof.  Amasa  Walker  (Science  of  Wealth, 
pp.  151-4).  The  opposite  view  is  taken  by  Mr.  Tooke  (History  of 
Prices,  i,  152-3",  ii,  337-8n,  iii,  123-4,  256),  Mr.  Nicholson  (Science 
of  Exchanges,  pp.  41-2),  and  Lord  Overstone  (Tracts,  etc.,  pp.  199, 
200,  343.) 

34* 


406  MONEY. 

hand  to  liand,  making  payments  and  discharging  debts, 
fully  and  finally,  without  recourse.  In  the  reign  of 
William  III,  considerable  amounts  of  exchequer  bills 
were  issued  as  low  as  <£5  and  £10,  "which,"  says  Dr. 
Drake,  "answered  the  necessities  of  commerce,  among 
the  meaner  people,  for  the  necessaries  of  life."  "  These 
bills,"  he  adds,  "passed  in  payment  as  so  many  count- 
ers." When,  however,  as  is  more  commonly  the  case, 
treasury  notes  or  exchequer  bills  bear  interest,  that  fact, 
in  a  considerable  degree,  retards  their  circulation.  As  the 
weight  of  interest  accumulates  towards  maturity,  they 
gradually  sink  out  of  circulation,  dropping  to  the  level 
of  ordinary  investments  yielding  interest.  Such  notes 
or  bills,  when  in  large  denominations,  are  commonly 
not  money  at  all. 


Perhaps  already  some  reader  has  exclaimed  impa- 
tiently, what  is  the  effect  of  these  distinctions  but  to 
render  any  conclusive  definition  of  money  impossible? 
If  bills  of  exchange  or  checks  may,  here  and  there,  now 
and  then,  become  money;  if  bank-notes,  on  the  other 
hand,  may,  in  possible  circumstances,  fall  out  of  the 
category  of  money,  how  are  we  ever  to  know  what 
money  is  and  what  is  money?  Would  it  not  be  better 
to  say  that  gold  and  silver  are  money  and  that  nothing 
else  is :  and  adopt  some  other  term  for  those  forms  of 
paper  which  are  substituted  for  gold  and  silver  in  trade  ? 

But  we  do  not  get  rid  of  the  difficulty  of  saying,  in 
any  given  case,  just  what  is  money  and  what  is  not  mon- 
ey, if  we  contemplate  gold  and  silver  alone.  On  the 
contrary,  a  money  of  the  precious  metals  only  must  al- 
ways be  subject  to  two  peculiar  deductions  of  large  but 
indefinite  extent.  In  the  first  place,  gold  and  silver  are 


MONEY  IS  THAT  MONET  DOES.  407 

being  continually  taken  in  exchange  for  other  commod- 
ities where  they  are  not  received  as  money.  In  such 
exchanges  gold  or  silver,  even  if  in  coin,  is  not  money. 
It  becomes,  notwithstanding  the  impress  of  the  mint,  an 
article  of  ordinary  merchandise,  accepted,  not  with  a 
view  to  being  soon  parted  with,  on  the  same  terms  and 
in  the  same  form  in  which  it  was  received,  but  that  it 
may  pass  at  once  into  consumption,  perhaps  as  the  ma- 
terial of  elaborate  manufacture.  In  the  second  place, 
of  the  gold  or  silver  money  of  a  country  a  large  but  al- 
ways unknown  share  is  in  hoards  or  reserves,  neither 
paying  debts  nor  making  purchases,  and  hence  not 
money. 

Indeed,  the  question,  money  or  not  money,  is,  in  re- 
spect to  anything  that  could  be  taken,  wholly  a  question 
of  degree — the  degree  of  the  extent  and  facility  of  its 
use  in  exchange.  We  say  that  money  is  any  commod- 
ity which  attains  such  a  measure  of  popular  acceptabil- 
ity that  men  habitually  receive  it  for  what  they  have  to 
sell,  knowing  that  it  will  in  due  time,  that  is,  at  any 
time,  command  in  exchange  what  they  may  wish  to  buy. 
As  we  have  seen,  two  commodities  may  be  used  as  mon- 
ey at  the  same  time ;  or  one  may  be  working  its  way  into 
general  currency,  while  another,  the  heretofore  recog- 
nized medium,  is  losing  its  popular  acceptance.  At  any 
given  moment  it  might  be  impossible  to  say  which  was 
in  the  greater  degree  the  money  of  the  community ;  it 
might  be  difficult,  at  another  moment,  to  say  whether 
either  was  money  or  not.  These  considerations,  how- 
ever, while  going  far  to  impair  the  authority  of  all  statis- 
tics of  monetary  circulation,  do  not  cast  the  slightest 
doubt  on  the  nature  of  the  Money-function  or  its  im- 
portance, or  render  it  impossible  to  reason  respecting  it 
with  accuracy  and  assurance. 


408  MONEY. 

The  impatience  of  economic  definitions  which  allow  of 
exceptions  is  very  widely  manifested,  appearing  in  many 
treatises,  even  those  of  great  merit.  M.  Chevalier  ex- 
hibits it  in  the  discussion  of  the  very  subject  on  which 
we  have  dwelt  at  such  length,  viz.,  the  question  whether 
bank-notes  are  money.1  Yet  many  of  the  most  impor- 
tant distinctions  in  political  economy  are  those  drawn 
between  classes  of  commodities,  of  services,  or  of  per- 
sons, where  yet  individuals  cannot  with  assurance  be 
identified  as  belonging  to  either  class.  Prof.  Cairnes 
has  well  stated  this  condition  of  economic  definition : 

"In  controversies  about  definitions,  nothing  is  more 
common  than  to  meet  objections  founded  on  the  assump- 
tion that  the  attribute  on  which  a  definition  turns  ought 
to  be  one  which  does  not  admit  of  degrees.  This  being 
assumed,  the  objector  goes  on  to«show  that  the  facts  or 
objects  placed  within  the  boundary  line  of  some  defini- 
tion to  which  objection  is  taken,  cannot,  in  their  extreme 
instances,  be  clearly  discriminated  from  those  which  lie 
without.  Some  equivocal  example  is  then  taken,  and  the 
framer  of  the  definition  is  challenged  to  say  in  which 
category  it  is  to  be  placed.  Now  it  seems  to  me  that  an 
objection  of  this  kind  ignores  the  inevitable  conditions 
under  which  a  scientific  nomenclature  is  constructed, 
alike  in  political  economy  and  in  all  the  positive  sciences. 
In  such  sciences,  nomenclature,  and  therefore  definition, 
is  based  on  classification,  and  to  admit  of  degrees  is  the 
character  of  all  natural  facts.  ...  It  is,  therefore, 

1  "Les  personnes  qui  veulent  que  le  billet  de  banque  soit  de  la 
monnaie,  n'ont  jamais  pu  tracer  une  ligne  de  demarcation  qui  fut  nette 
entre  le  billet  de  banque  et  la  lettre-de-change,  ou  le  billet-a-ordre. 
Si  1'ou  dit  que  le  billet  de  banque  passe  de  main  en  main  sans  en- 
dossement,  on  peut  repondre  que  les  lettres-de-change  en  llanc  sont 
dans  le  meme  cas,"  etc.,  etc. — [La  Monnaie,  p.  59.] 


ADVANTAGES  OF  PAPER  MONEY.  409 

no  valid  objection  to  a  classification,  nor  consequently, 
to  the  definition  founded  upon  it,  that  instances  may  be 
found  which  fall,  or  seem  to  fall,  on  our  lines  of  dernar- 
kation.  This  is  inevitable  in  the  nature  of  things.-  But 
this  notwithstanding,  the  classification,  and  therefore  the 
definition,  is  a  good  one,  if,  in  those  instances  which  do 
not  fall  on  the  line,  the  distinctions  marked  by  the  defi- 
nition are  such  as  it  is  important  to  mark." — [Character 
and  Logical  Method  of  Pol.  Economy.] 


The  motive  for  the  issue  of  Convertible  Paper  Money 
is  twofold :  first,  the  greater  convenience  of  paper  as 
compared  with  gold,  and  in  a  still  higher  degree  as 
compared  with  silver.1 

A  thousand  sovereigns  weigh  upwards  of  twenty-one 
pounds  troy ;  silver  of  the  same  value,  fifteen  or  sixteen 
times  as  much.  Such  an  amount  of  metallic  treasure 
would  not  only  be  exceedingly  cumbersome,  but  its  pres- 
ence could  hardly  escape  observation,  inviting  not  only 
to  robbery  but  to  graver  violence. 

The  second  motive  for  the  issue  of  Convertible  Paper 
Money  is  its  greater  cheapness  (i.  e.,  to  the  issuer),  since 
it  has  been  ascertained  that  a  much  larger  amount  of 
paper  can  be  kept  in  circulation  than  is  held  of  specie 
for  redemption ;  and  the  issuer  of  the  paper  derives  a 

1  In  his  recent  letter  on  the  silver  question,  Mr.  Wells  has  dwelt 
sportively  on  the  cumbrousness  of  silver,  at  its  present  purchasing 
power,  as  an  argument  against  the  rehabilitation  of  that  metal  as 
unlimited  legal  tender  concurrently  with  gold.  "  The  wheelbarrow, 
in  fact,  will  become  the  essential,  and  possibly  the  fashionable,  porte- 
monnaie  for  all  who  purpose  to  engage  in  any  considerable  moneyed 
transactions."  The  sufficient  answer  to  Mr.  Wells's  objection  is  that 
the  bank-note  has  been  in  use  two  hundred  years. 

35 


410  MONEY. 

profit  from  the  interest  on  all  notes  loaned,  above  the 
coin  and  bullion  in  his  possession. 

It  is  commonly  said  that  paper  money  thus  issued 
represents  specie,  but  we  shall  do  well  to  decline,  with 
Mr.  Tooke  [Hist,  of  Prices,  iii,  224],  and  Prof.  Price,  to 
admit  a  term  so  vague  and  misleading.  "I  cannot,"  says 
the  latter,  "accept  the  word  'represent'  in  currency,  for 
I  can  never  understand  its  meaning.  It  has  no  definite 
meaning  for  me,  nor,  as  far  as  I  can  perceive,  for  any 
one  else." — [Principles  of  Currency,  p.  69.] 

"Were  a  paper  money  to  be  based  Upon  the  full  amount 
of  specie  needed  for  its  redemption  entire,  the  question 
whether  it  would  be  more  or  less  expensive  to  the  com- 
munity, as  a  whole,  would  depend  upon  the  ratio  between 
the  loss  of  coin  by  abrasion  in  use,  and  the  expense  of 
putting  out  and  keeping  out  paper  promissory  of  coin. 
It  might  be  that,  in  a  given  state  of  the  arts  of  coinage, 
on  the  one  hand,  and  of  engraving,  paper-manufacturing, 
and  printing,  on  the  other,  the  cost  of  replacing  gold  by 
paper  would  be  an  expensive  one.  At  another  time,  the 
charge  of  issuing  notes  might  be  much  below  the  value 
of  the  metal  lost  from  year  to  year  by  abrasion;  and 
hence,  the  country  as  a  whole,  would  be  a  gainer  by  the 
substitution  of  paper  for  the  full  amount  of  coin  held  for 
redemption. 

Looking,  however,  to  the  interest  of  any  private  issu- 
ing body,  it  will  appear  that  the  cost  of  maintaining 
such  a  circulation  would  be  greater  by  the  whole  expense 
of  engraving,  printing,  and  issuing  the  paper.  But  with 
a  reserve  of  coin  and  bullion,  such  as  the  experience  of 
modern  banking  has  ascertained  to  be  sufficient  to  meet 
all  demands  reasonably  to  be  anticipated,  the  profit  to 
the  issuing  body  may  be  very  considerable. 

"The  gold  and  silver  money,"  wrote  Adam   Smith, 


DANGERS  OF  PAPER  MONEY.         .         4H 

"which  circulates  in  any  country  may  very  properly  be 
compared  to  a  highway,  which,  while  it  circulates  and 
carries  to  market  all  the  grass  and  corn  of  the  country, 
produces  itself  not  a  single  pile  of  either.  The  judi- 
cious operations  of  banking,  by  providing,  if  I  may  be 
allowed  so  violent  a  metaphor,  a  sort  of  wagon-way 
through  the  air,  enable  the  country  to  convert,  as  it 
were,  a  great  part  of  its  highways  into  good  pastures 
and  cornfields,  and  thereby  to  increase  very  considera- 
bly the  annual  produce  of  its  land  and  labor.  The  com- 
merce and  industry  of  the  country,  however,  it  must  be 
acknowledged,  though  they  may  be  somewhat  augment- 
ed, cannot  be  altogether  so  secure  when  they  are  thus, 
as  it  were,  suspended  upon  the  Daedalian  wings  of  paper 
money,  as  when  they  travel  about  upon  the  solid  ground 
of  gold  and  silver." — [Wealth  of  Nations,  i,  321.] 

The  closing  sentence  quoted  from  Dr.  Smith  intimates 
a  contingency  to  which  Convertible  Paper  Money  is  al- 
ways, in  a  greater  or  less  degree,  subject,  namely,  a  "  run  " 
upon  the  banks  for  the  redemption  of  their  notes,  which 
shall  exhaust  their  reserves  of  specie.  Icarus,  it  will  be 
recollected,  set  out  with  Daedalus  on  his  flight  through 
the  air,  but,  by  soaring  too  near  the  sun,  which,  after  the 
manner  of  Lord  Bacon,  we  may  conjecture  to  represent 
the  fierce  blaze  of  competition,  his  wings  of  wax  were 
melted,  so  that  he  fell  out  of  the  aerial  highway  and  was 
drowned  in  the  waters  which  bear  his  name.  Nor  is  dis- 
aster possible  merely.  Miscarriages  enough  have  oc- 
curred on  these  "wagon-ways  through  the  air,"  in  the 
brief  history  of  the  United  States,  to  give  a  name  to 
every  bay  and  cape  upon  our  coast. 

Yet  though  the  issue  of  bank-notes  on  a  partial  basis 
of  specie,  under  the  doctrine  of  chances,  is  always,  in 
the  nature  of  the  case,  at  a  certain  risk,  this  does  not 


412  MONEY. 

constitute  a  fatal  objection  to  paper-money  banking,  if  it 
be  otherwise  desirable.  Men  and  communities  rightly 
take  the  necessary  risk  of  collisions  and  boiler  explo- 
sions for  the  sake  of  the  saving  in  time  and  the  gain  in 
power  which  they  derive  from  the  use  of  steam-cars  and 
steamboats.1  So  it  might  be  with  disasters  to  which, 
from  the  fault  of  managers  or  through  causes  that  could 
neither  be  controlled  nor  anticipated,  paper-money  bank- 
ing should  be  found  subject. 

Just  what  proportion  between  notes  and  specie-re- 
serves will,  in  the  balancing  of  gain  against  loss,  leave 
the  largest  net  result  in  favor  of  such  a  system,  is  a 
purely  banking  question.  Lord  Overstone,  a  very  con- 
servative writer,  who  will  often  be  quoted  in  the  remain- 
ing pages  of  this  work,  regards  one-third  bullion  as  suf- 
ficient even  in  a  country  where  communication  is  so  apt 
and  quick  as  in  England  [Tracts,  pp.  455-6].  This  is 
the  proportion  actually  taken  in  many  countries  of  Eu- 
rope, as  the  legal2  minimum  reserve.  It  is  clear, however, 
that  the  conditions  of  issue  must  differ  so  widely,  from 
time  to  time,  and  place  to  place,  as  to  make  it  impossi- 
ble to  apply  the  same  rule  to  all  banks  with  any  benefit. 

A  bank  whose  notes  circulate  among  a  rural  popula- 

1  Wolowski,  La  Question  des  Banques,  p.  385. 

2  Of  the  rule  of  one-third  specie,  M.  Wolowski  writes :    "  Si  la 
Banque  a  ete  imprudente  dans  les  emissions,  la  precaution  est  in- 
suffisante ;  si,  au  contraire,  la  Banque  est  prudemment  et  loyalement 
administre'e,  la  reserve  metallique,  du  tiers  ne  tarde  pas  a  paraaitre 
excessive,  comme  condition  absolue.     L'observation  et  1'experience 
peuvent  apprendre,  non  sous  forme  de  regie  gencrale,  mais  pour 
chaque  place  de  commerce  et  pour  chaque  banque,  stelon  la  nature 
et  le  mouvement  des  affaires,  quelle  doit  etre  la  reserve  metallique 
combineV  avec  la  rentre"e  des  creances." — [La  Question  des  Banques, 
p.  202.] 


THE  RESERVE.  413 

tion,  going  twenty  or  fifty  miles  in  all  directions  from 
the  place  of  issue,  where  intelligence  of  disaster  would 
make  its  way  slowly,  where  panic  would  be  impossible, 
from  the  mere  lack  of  contiguity,  and  where  the  expense 
of  presenting  a  small  note  at  the  bank-counter  might 
equal  or  exceed  its  value,  is  in  a  very  different  position 
from  one  whose  notes  are  mainly  held  in  the  city  where 
they  are  issued.  Here  the  whole  population  can  be 
brought  into  the  streets  by  the  stroke  of  a  bell;  intelli- 
gence of  evil  spreads  rapidly,  and  the  contagion  of  panic 
acts  with  terrific  force. 

The  question  of  specie-reserve  is,  however,  as  has 
been  said,  purely  a  banking  question,  with  which  in  the 
theory  of  Convertible  Paper  Money  we  have  little  or 
nothing  to  do.  The  banks  of  a  country  might  have  re- 
serves of  two-thirds,  or  four-fifths  their  issues,  putting 
them  beyond  all  reasonable  apprehension  of  a  failure  to 
redeem  their  notes  on  demand ;  and  yet  it  would  be  an 
open  question,  whether  they  might  not  issue  notes  in  ex- 
cess, arid  thus  subject  the  community  to  the  effects  of 
inflation.  In  a  word,  the  question  of  the  reserve  is  a 
question  as  to  what  is  good  for  the  banks  and  the  actual 
holders  of  their  notes.  Beyond  this  is  the  question,  what 
is  good  for  the  community. 

Bank-notes,  in  the  modern  sense,  were  first  issued  in 
Sweden.  The  bank  which,  in  1668,  became  the  Bank  of 
Sweden,  'was  first  founded  by  Palmstruck,  in  1656.  The 
first  note  was  issued  in  1658,1  nearly  forty  years  before 
the  Bank  of  England  was  chartered. 

The  Bank  of  England,  until  1759,  issued  no  notes  of 
less  value  than  £20.2  The  practice  of  issuing  bank-notes 

1  Palgrave,  Notes  on  Banking,  p.  87. 
9  Francis,  Hist.  Bank  of  England,  i,  172. 


414  MONEY. 

as  the  ordinary  money  of  circulation  began  in  Scotland 
long  before  it  did  in  England,  the  Bank  of  Scotland  issu- 
ing «£!  notes  as  early  as  1704.  Sir  Henry  Parnell  and 
Mr.  Thornton  assign  the  close  of  the  war  of  the  Ameri- 
can Revolution  as  the  date  when  the  first  considerable 
extension  of  paper-money  banking  in  England  took  place. 


We  have  seen  that  superior  convenience  and  compara- 
tive cheapness  are  claimed  for  Convertible  Paper  Money. 
By  some  writers  a  third  advantage-  is  alleged,  respecting 
which,  however,  wide  difference  of  opinion  exists. 

Prof.  Price,  in  his  work  on  the  "Principles  of  Curren- 
cy," so  often  quoted  in  these  pages,  gives  at  considerable 
length,  and  with  general  approval,  a  letter  of  Mr.  Charles 
Gairdner,  manager  of  the  Union  Bank  of  Glasgow,  who 
alleges  concerning  bank  paper  money,  that  "  it  confers  a 
third  advantage,  in  respect  that  the  amount  of  money  in 
circulation  in  any  country  being  a  fluctuating  quantity, 
an  increase  or  diminution  in  the  amount  of  paper  money 
in  circulation  may  take  place  without  disturbing  the 
stock  of  coin  which  forms  the  reserve." 

Mr.  Patterson,  author  of  a  work  entitled  "The  Sci- 
ence of  Finance,"  writes :  "  The  grand  value  of  a  note 
circulation  nowadays,  at  least  in  this  country  where 
the  economy  of  banking  is  so  fully  developed,  consists, 
not  so  much  in  the  extent  to  which  it  economizes  specie, 
as  in  its  power  of  ready  expansibility,  by  which  it  can 
be  made  to  neutralize  the  ever  recurring  fluctuations  in 
the  supply  of  specie,  or  in  the  monetary  requirements  of 
the  community. 

"  The  amount  of  these  fluctuations  is  comparatively 
trivial,  and  they  are  exceedingly  transient.  Neverthe- 
less, if  any  obstacle  prevent  the  expansion  of  the  note 


"ELASTIC  CURRENCY:1  415 

circulation  at  such  times,  the  effects  are  tremendous. 
Not  only  trade,  but  the  banking  system  itself,  is  liable 
to  be  pulled  to  the  ground."— [P.  37.] 

On  the  other  hand,  as  opposed  to  those  who  hold  that 
one  of  the  advantages  of  paper  money  is  that  it  forms  a 
medium  more  "elastic"  than  metallic  money,  are  two 
schools  of  writers,  one  of  which  holds,  with  Mr.  Tooke  in 
his  later  works,  not  only  that  elasticity  is  not  desira- 
ble, but  that,  in  the  very  nature  of  the  case,  it  cannot 
exist;  the  second,  which  holds,  with  Mr.  Tooke  in  his 
earlier  works,  and  with  Lord  Overstone,  that  such  capa- 
bility of  expansion  exists  in  Convertible  Paper  Money, 
but  is  e'minently  undesirable,  and  indeed  forms  the  great 
drawback  to  the  motives  of  superior  convenience  and 
cheapness,  in  the  issue  of  such  money.1 

In  the  question  thus  disputed,  as  to  the  expansibility 
of  bank  circulation  over  and  above,  or  otherwise  than, 
the  expansibility  of  metallic  money,  lies  the  whole  phi- 
losophy of  Convertible  Paper  Money. 

If  the  writers  of  the  one  school  are  correct,  and  such 
money  cannot  expand  or  contract  otherwise  than  as 
metallic  money  would  in  the  same  circumstances.  tKe 
problem  is  a  very  simple  one.  Nothing  but  good  bank- 
ing is  needed  to  give  the  people  good  money. 

1  I  have  elsewhere  [see  p.  191]  confessed  my  inability  to  reconcile 
with  Mr.  Ricardo's  often  repeated  opinions  as  to  the  effects  of  seign- 
iorage on  prices,  a  sentence  from  his  "  High  Price  of  Bullion."  I 
have  now  to  admit  that  I  am  wholly  without  an  explanation  of  the 
following  sentence  in  Mr.  Ricardo's  "Proposals  for  an  Economical 
and  Secure  Currency  " :  "  Amongst  the  advantages  of  a  paper  over  a 
metallic  circulation,  may  be  reckoned  as  not  the  least,  the  facility 
with  which  it  may  be  altered  in  quantity  as  the  wants  of  commerce 
and  temporary  circumstances  may  require,  enabling  the  desirable 
object  of  keeping  money  at  a  uniform  value  to  be,  as  far  as  it  is  prac- 
ticable, securely  and  cheaply  attained." 


416  MONEY. 

On  the  other  hand,  if  such  issues  are  subject  to  expan- 
sion and  contraction  otherwise  than  as  metallic  money, 
those  who  hold  with  Lord  Overstone  find  the  necessity 
of  rigidly  guarding  the  power  of  issue  and  subjecting  it 
to  regulations  not  such  merely  as  are  prescribed  by  cor- 
rect banking  principles,  but  such  also  as  are  required 
for  the  protection  of  the  community  against  bad  money, 
as  the  result  of  undue  expansion  or  contraction. 


And,  first,  a  word  and  a  word  only,  as  to  the  desirable- 
ness of  the  so-called  "elasticity"  of  a  Convertible  Paper 
Money. 

We  have  seen  that  elasticity  is  also  predicated  of  In- 
convertible Paper  Money  by  its  advocates  and  admirers, 
but  upon  examination  we  found  that  there  is  no  elas- 
ticity whatever  in  such  a  money,  in  the  sense  of  its 
giving  under  pressure,  to  resume  its  shape  after  pres- 
sure is  withdrawn.  There  is  no  more  elasticity  in  a  cir- 
culating medium  composed  of  inconvertible  notes,  than 
there  is  in  a  lump  of  dough,  which  may  be  pulled  out  to 
any  length,  at  least  until  it  breaks  apart,  but  never  flies 
back  when  the  distending  force  is  withdrawn. 

But  is  there  elasticity,  in  any  proper  sense,  in  a  Con- 
vertible Paper  Money  ?  Those  who  demand  that  money 
shall  be  "elastic,"  mean  by  this  that  there  shall  be  more 
of  it  at  one  time  than  at  another.  Is  this  elasticity  ?  A 
rubber  band  is  elastic,  but  there  is  no  more  of  it  at  one 
time  than  at  another.  It  will  cover  more  ground  at  one 
time  than  at  another,  but  it  only  does  so  by  becoming 
thinner.  There  will  be  more  of  it,  in  any  one  place,  at 
one  time  than  at  another,  but,  for  this  reason,  there  is 
less  of  it  in  some  other  place.  There  is  no  more  rubber 
when  the  band  is  stretched,  than  there  was  before.  Now, 


"ELASTIC  CURRENCY:'  417 

elasticity  in  tliis,  the  true  sense,  belongs  eminently  to 
metallic  money.  No  class  of  commodities  known  to 
men,  yield  more  quickly  under  pressure,  or  react  more 
promptly.  If  an  exceptional  demand  arises  anywhere, 
gold  or  silver  responds  with  an  alacrity  which  wrould 
be  unattainable  by  any  article  not  possessing  great  val- 
ue for  its  bulk,  and  not,  at  the  same  time,  that  article  in 
which  the  values  of  all  commodities  are  expressed  for 
purposes  of  exchange.  But  while,  in  obedience  to  eco- 
nomical impulses,  however  slight,  there  may  be  more  of 
such  money  in  any  one  place,  at  one  time  than  at  another, 
the  total  amount  is  not,  on  that  account,  increased. 
There  is  less  at  the  same  time  in  some  other  place,  or  in 
all  other  places.  This  fact  is  essential  to  create  that 
tension  which  shall  make  it  certain  that,  when  the  excep- 
tional demand  in  the  first  indicated  place  shall  cease, 
the  volume  of  money  will  be  promptly  and  accurately 
redistributed,  according  to  the  prevailing  conditions  of 
international  commerce. 

With  a  Convertible  Paper  Money,  however,  no  such 
assurance  exists.  Enlarged  local  demand  is  not  met  by 
a  supply  drawn  from  the  general  reservoir,  to  be  re- 
turned again  after  the  exigency  is  over  to  the  common 
circulation,  but  by  issues  of  local  origin  and  local  accept- 
ance. 

But  it  is  said,  trade  everywhere  needs  more  money  at 
one  season  of  the  year  than  at  another,  and,  as  the 
amount  of  metallic  money  can  be  no  greater  in  spring 
than  in  autumn,  in  summer  than  in  winter, -paper  issues 
come  in  to  meet  the  larger  demands  of  the  busier  sea- 
sons, to  which  the  precious  metals  are  incapable  of  re- 
sponding. It  is  unquestionably  true  that  more  ex- 
changes require  to  be  effected  by  the  use  of  money  at 
one  season  of  the  year,  in  any  given  place  or  within  any 
35* 


418  MONEY. 

given  occupation,  than  at  other  seasons,  but  to  the  claim 
hereupon  made  that  the  amount  of  money  should  be 
susceptible  of  increase  by  local  issues,  three  things  are 
objected. 

First.  The  periodical  occasions  for  a  larger  use  of 
money,  on  the  part  of  different  trades  and  different  local- 
ities, go  far  to  offset  each  other.  The  busy  time  of  the 
manufacturer  is  not  necessarily  the  busy  time  of  the 
agriculturist;  lumber  and  cotton  are  not  moved  to 
market  in  the  same  season.  In  the  same  way  trade 
reaches  its  height  in  different  sections  and  countries  at 
different  periods  of  the  year,  so  that  money  may  be  do- 
ing its  work  this  month  in  France,  return  next  month  to 
England  to  meet  the  demands  of  Lancashire,  and  go  two 
weeks  later  to  Glasgow,  in  the  usual  November  drain 
northward,  to  satisfy  the  wants  of  the  iron  trade  of 
Scotland. 

Secondly.  It  does  not  follow  from  the  fact  that  more 
exchanges  are  to  be  effected  by  the  use  of  money,  that 
more  actual  pounds  or  dollars  are  requisite.  M<mey,  as_ 
we  have  seen,  is  a  quantity_jofjwo  dimensions^JJie  num- 
/berjpf  pieces  of  gpj^^r^sib^r^-oj^paper,  and  their  rate 
of  movement.1  A  scarcity  of  money  will  first  make  itself 
felt  in  an  increased  activity  of  what  is  on  hand.  Each 
piece  will  accomplish  more  payments  in  the  same  time. 
A  rising  rate  of  interest  makes  the  use  of  money  worth 
more,  and  hence  it  will  not  be  allowed  to  remain  so  long 
idle  in  the  pocket  or  the  drawer.  If  the  merchant  or 
the  manufacturer  has  to  pay  eight  per  cent.,  in  place  of 
six,  for  discounts,  he  will  calculate  his  outgoings  and 
incomings  more  closely,  in  order  to  reduce  the  average 

1  "  Whether  sixpence  twice  paid  be  not  as  good  as  a  shilling  once 
paid  ?  "—[Bishop  Berkeley's  Querist,  No.  478.] 


-  " ELASTIC  CURRENCY."  419 

amount  lying  in  his  till.  He  will  deposit  more  promptly 
to  secure  the  higher  interest ;  he  will  take  more  pains 
in  collecting  sums  due  from  his  customers,  with  whom 
the  money  might  otherwise  have  tarried  a  day  or  a  week 
longer. 

Thirdly.  While  there  is  a  tendency,  in  a  normal  con- 
dition of  production  and  trade,  to  a  greater  demand  for 
money  at  one  period  than  at  another,  a  certain  strin- 
gency at  such  times  is  desirable  as  exerting  a  whole- 
some repression  upon  speculative  movement.  The  pres- 
ent industrial  and  commercial  organization  of  the  world 
powerfully  tends  to  gather  production  into  great  waves 
with  corresponding  intervals  of  depression — overpro- 
duction succeeded  surely  by  stagnation.  This  cannot 
be  wholly  prevented.  A  certain  waste  of  energy,  which 
always  results  from  fitful  exertions,  must  be  accepted  as 
among  the  economical  conditions  of  this  age.  But  it  is 
utterly  undesirable  that  the  tendency  should  be  quick- 
ened and  strengthened  by  the  facility  of  issues  of  local 
origin  and  circulation. 


Passing  now  from  the  views  of  those  who,  with  Mr. 
Patterson,  hold  that  facility  of  increase  in  a  Convertible 
Paper  Money,  any  other  in  kind  or  degree  than  subsists 
in  money  of  gold  or  silver,  is  both  practicable  and  de- 
sirable, let  us  fix  our  attention  on  the  two  schools  which 
agree  in  regarding  any  action  of  such  money  varying 
from  the  action  of  metallic  money,  under  the  same  con- 
ditions, as  eminently  undesirable,  but  differ  as  to  the 
possibility  of  such  a  divergence. 

First,  as  to  the  undesirableness  of  divergence :  "  A 
mixed  currency  of  coin  and  convertible  paper,"  says 
Mr.  Wilson,  "  ought  to  conform  to  the  action  of  a  pure- 
ly metallic  currency." 


420  MONEY. 

"A  currency  when  composed  of  bank-notes  and  coin," 
says  Mr.  Nicholson,  "ought  to  be  made  by  law  to 
fluctuate  in  its  amount  exactly  as  a  currency  composed 
of  coin  only  would  have  fluctuated  under  similar  cir- 
cumstances." 

"We  are  willing,"  said  Mr.  Tooke,  "to  consider  a  me- 
tallic currency  as  the  type  of  that  to  which  our  mixed 
circulation  of  coin  and  paper  ought  to  conform." 

"I  consider,"  said  Mr.  George  Warde  Norman,  "a 
metallic  currency  to  be  the  most  perfect  currency,  except 
so  far  as  respects  inconvenience,  in"  some  respects,  and 
cost.  In  everything  else  a  metallic  currency  is  the  most 
perfect,  and  should  be  looked  upon  as  the  type  of  all 
other  currencies." 

What,  asks  Lord  Overstone,  "  is  the  test  of  misman- 
agement of  the  circulation  ?  I  presume  the  answer  will 
not  be  disputed.  Fluctuations  of  the  amount  of  paper 
issues  not  corresponding  to  those  of  bullion." — [Tracts, 
etc.,  p.  168.] 

"The  sole  duty,"  he  declares,  "to  be  performed  in 
regulating  a  paper  currency  is  to  make  its  amount  vary 
as  the  amount  of  a  currency  exclusively  metallic  would 
vary  under  the  same  circumstances." — [Ibid.,  p.  36,  cf. 
pp.  27,  58,  73,  115,  168,  172,  189,  191,  362.] 

These  are  the  expressions  of  writers  of  both  schools, 
and  it  will  be  seen  that  neither  school  yields  to  the  other 
in  the  completeness  and  emphasis  with  which  it  asserts 
that  a  Convertible  Paper  Money  should  conform  precise- 
ly, in  all  its  operations,  to  the  movement  of  metallic 
money. 

"But,  further,"  says  Mr.  Tooke,1  "we  contend  that  it 
has  so  conformed^  and  must  so  conform,  while  the  paper 
is  strictly  convertible." 

1  History  of  Prices,  1839-47,  p.  218. 


"ELASTIC  CURRENCY:^ 


421 


It  is   on   this   point   that  we   see  joined  the   issue 
which  divides  the  two  schools  of  economists  known  re- 
spectively by  the  titles,  TheJJurrency  Principle  and  the 
Banking  Principle. 
35^ 


CHAPTER  XIX. 

THE  CURRENCY  PRINCIPLE  VS.  THE  BANKING  PRINCIPLE. 

HAVING  seen  how  closely  the  two  schools  agree  in 
holding  it  to  be  a  desideratum  that  Convertible  Paper 
Money  shall  operate  in  all  cases  precisely  as  metallic 
money  would  do,  we  now  note  how  widely  they  diverge 
on  the  question  of  the  practicability  of  an  action  in  the 
one  form  of  money  different  from  what  would  occur, 
under  similar  circumstances,  in  the  other. 

"An  expanded  or  inflated  currency  of  bank-notes," 
says  Prof.  Price,1  "  is  an  absurdity,  nothing  better  than 
pure  nonsense."  And  again,  "A  convertible  paper 
money  encounters  a  most  solid  and  objective  obstacle  to 
excess." 

"We  hold  it,"  says  Mr.  Wilson,2  "as  an  incontroverti- 
ble fact,  that  there  can  be  no  variation  whatever  in  the 
quantities,  values,  or  general  action  of  a  currency  purely 
metallic,  or  of  one  composed  of  coin  and  convertible 
paper ;  and  that  the  principle  of  convertibility  alone  is 
a  perfect  guarantee  that,  in  all  cases  and  in  every  re- 

1  Principles  of  Currency,  p.  110.     Of  his  predecessors  in  the  de- 
partment of  Money,  Prof.  Price  writes :  "  Mr.  Tooke  discerned  the  true 
answer.     Mr.  Mill,  with  some  little  wavering,  and  a  few  others,  have 
seen  the  light." — [Hid.] 

2  Capital,  Currency  and  Banking,  p.  66,  cf.  82. 


"  THE  CURRENCY  PRINCIPLE."  423 

spect,  the  one  currency  would  strictly  conform  with  the 
other." 

Prominent  also  among  writers  of  this  school  was  Mr. 
Fullarton,  the  author  of  a  work  of  exceeding  ability  on 
the  "Regulation  of  Currencies." 

"I  contend,"  says  Mr.  Fullarton,  "that  there  not  only 
ought  to  be  such  correspondence,  but  that  there  always 
is ;  that,  wherever  the  convertibility  of  paper  is  perfect 
and  secured  from  all  delay  or  impediment,  the  coin  of 
full  standard  value  in  weight  and  fineness,  and  the  traf- 
fic in  the  metal,  whether  coined  or  uncoined,  absolutely 
free  and  unrestricted, .there  the  bank  issues,  if  left  to 
themselves,  must  necessarily  fluctuate  in  conformity  to 
the  principles  which  govern  the  supply  of  the  standard 
metal."1 


Conspicuous  among  the  English  economists  who 
maintained  "the  Currency  Theory,"  so  called,2  that  is, 
who  held  to  the  practicability  of  a  divergent  action  of 
the  two  forms  of  money,  and  to  the  consequent  necessity 
of  regulating  issues  upon  principles  different  from,  or 
additional  t6,  mere  banking  principles,  was  Lord  Over- 
stone,  once  Samuel  Jones  Loyd,  an  eminent  banker,  and 
a  writer  of  marked  originality  and  power.  Alluding  to 

1  "  Lorsqu'on  etudie  avec  attention  les  principes  de  la  circulation 
monetaire,  que  nous  venons  d'exposer,  on  demeure  convaincu  qu'une 
ou  plusieurs  banques  de  circulation  operant  sur  un  marche,  et  ne 
commettant  pas  de  fautes  dans  leurs  escomptes,  ne  peuvent  jamais 
emettre  trop  de  billets,  quels  que  soient  leurs  efforts  dans  ce  but, 
parce  que  leurs  emissions  ont  une  limite  naturelle  et  necessaire."- 
[Courcelle-Seneuil,  Op.  de  Banq.,  p.  207-8.] 

2  "We  are  not  aware,"  says  Mr.  Wilson,  "of  any  reason  for  this 
appellation  to  the  doctrine ;  but  we  use  it  as  a  well-known  distinc- 
tion."— [Capital,  Currency  and  Banking,  p.  61n.] 


424  MONEY. 

the  former  consent  of  economists  as  to  the  similar  ac- 
tion of  the  two  forms  of  money  in  all  cases,  Lord  Over- 
stone  wrote  in  1840 :  "It  is  now  discovered  that  there  is 
a  liability  to  excessive  issues  of  paper,  even  while  that 
paper  is  convertible  at  will." ]  This  proposition  Lord 
Overstone  maintained  during  his  life  with  great  assidu- 
ity and  much  ingenuity.  It  was  to  the  failure  of  the 
government  properly  to  regulate  the  amount  of  paper 
money  in  England  (consisting  of  Bank  of  England  and 
country  notes)  prior  to  1844,  so  as  to  enforce  upon  it 
an  action  conforming  precisely  to*  what  the  action  of 
metallic  money  would  have  been,  that  Lord  Overstone 
attributed  the  disasters  "of  the  four  great  drains"2  be- 
tween 1824  and  1840 ;  and  when  the  act  of  1844,  based 
upon  the  principles  advocated  by  him,  if  not,  as  general- 
ly believed,3  designed  and  proposed  by  him,  established 

1  Tracts,  p.  138. 

9  The  drain  terminating  in  the  crisis  of  1825,  the  drain  which 
continued  from  the  year  1830  to  the  year  1832,  the  third  drain, 
which  began  in  the  end  of  the  year  1833,  and  terminated  in  the  year 
1836,  and  the  last  drain,  which  began  in  1838  and  ended  in  the 
autumn  of  1839. 

Mr.  Tooke,  on  the  other  hand,  denied  that  there  was  any  disturb- 
ance whatever,  of  either  banking  or  mercantile  credit,  in  1832.  The 
effects  of  1836,  he  asserted,  were  confined  to  the  American  and  East 
Indian  trade.  He  asseverates  that  there  was  not  any  crisis  in  1839,  any 
failures,  or  any  difficulty  in  obtaining  discounts.  "  The  whole  of  the 
phenomena  of  that  year  are  resolvable  into  a  moderately  increased 
rate  of  interest,  during  a  very  short  interval,  and  an  uneasiness  in 
the  minds  of  the  public  at  the  unsafe  position  in  which  the  Bank 
had,  by  want  of  foresight,  suffered  itself  to  be  placed." — [Hist,  of 
Prices,  1839-47,  pp.  263-270.]  He  makes  the  only  real  crises  of  En- 
glish ^financial  history  prior  to  1850  to  be  those  of  1792-3,  1810-1, 
1825*and  1847. 

8  Lord  Overstone  disclaimed  all  credit  for  the  Act.  "  I  never  ex- 
changed one  word  upon  the  subject  of  the  Act  with  Sir  Robert  Peel. 


MR.  TOOKE'S  VIEWS.  425 

the  paper  circulation  upon  principles  which,  in  his  opin- 
ion,1 secured  its  action  in  exact  conformity  to  that  of 
metallic  money,  Lord  Overstone  found  in  the  subsequent 
financial  disasters  of  England  only  the  natural  results 
of  commercial  misconduct  in  speculation  and  overtrad- 
ing, which  were  inevitable  in  the  constitution  of  things, 
and  would  have  occurred  equally  under  any  form  of  cir- 
culation. 

With  Lord  Overstone  were  Mr.  George  Warde  Nor- 
man and  Col.  Torrens,  while  Sir  Kobert  Peel,  adopting 
their  views,  carried  through  Parliament  the  Act  which 
now  regulates  the  circulation  of  the  Bank  of  England 
and  of  the  other  banks  of  the  United  Kingdom. 

But  perhaps  we  may  say  that  the  ablest  defense  of 
the  Currency  Principle  is  to  be  found  in  the  earlier 
works  of  Mr.  Thomas  Tooke,  the  same  writer  who  after- 
wards came  to  be  recognized  as  the  leader  of  the  op- 
posing school.  We  find  these  views  in  the  first  edition 
of  his  great  work  on  Prices,  published  in  1823,  and  in 
his  tract  on  the  "State  of  the  Currency,"  published  in 
1826.  From  these  earlier  works  of  Mr.  Tooke  I  shall 
frequently  quote  in  the  further  discussion  of  this  most 
difficult  subject,  not  at  all  in  the  spirit  of  citing  a  man 
against  himself,  or  with  any  view  to  break  the  force  of 
his  later  utterances;  but  simply  because  I  find  his 
statements  of  the  Currency  Principle,  at  the  time  he 

.  .  .  By  the  Act  of  1819,  Sir  Robert  Peel  placed  the  monetary 
system  of  this  country  upon  an  honest  foundation,  and  he  was  ex- 
posed to  great  obloquy  for  having  so  done.  By  the  Act  of  1844,  he 
has  obtained  ample  and  efficient  security  that  this  honest  foundation 
of  our  monetary  system  shall  be  effectually  and  permanently  main-^ 
tained." 

1  For  the  general  development  of  Lord  Overstone's  views,  see 
"  Hardcastle  on  Banks,"  pp.  177-8  cf.  pp.  203,  209. 


426  MONEY. 

held  it,  to  be  more  satisfactory  than  those  of  any  other 
writer.,  This  is,  of  course,  to  accord  great  importance 
to  Mr.  Tooke's  subsequent  recantation  of  this  theory 
and  his  long  opposition  to  it ;  and  yet  I  am  disposed  to 
think  that  the  historian  of  English  prices  was  nearer 
the  truth  in  his  earlier  than  in  his  later  works. 

It  was  about  1840  that  Mr.  Tooke,  through  a  new  edi- 
tion of  the  first  two  volumes  of  his  work  on  Prices,  final- 
ly parted  company  with  the  advocates  of  the  Currency 
Principle,  and  for  the  first  time  announced  the  views 
which  he  afterwards  consistently*  maintained.  Mr. 
Tooke  quotes1  and  accepts  Mr.  Fullarton's  account  of 
his  progress  in  the  theory  of  Money  : 

"At  the  time  of  that  publication  in  1823,  Mr.  Tooke's 
mind  appears  to  have  been  strongly  imbued  with  the 
prevailing  notions  that  prices  are  liable  to  rise  and  fall 
with  the  increase  or  diminution  of  the  amount  of  bank- 
notes in  circulation ;  that  banks  have  it  in  their  power 
to  increase  at  pleasure  the  quantity  of  paper  money ; 
and  that  the  efflux  and  influx  of  gold  are  to  be  regulated 
by  regulating  the  issues  of  the  banks. 

"  He  adhered  to  these  doctrines  after  he  had  refuted 
them  by  his  discoveries,  and  seems  to  have  parted  with 
them  at  last  only  by  degrees  and  with  reluctance,  under 
the  pressure  of  his  growing  convictions." 

In  speaking,  then,  of  the  early  works  of  Mr.  Tooke,  I 
refer  to  those  in  which  he  maintained  the  so-called  Cur- 
rency Principle ;  and  in  speaking  of  his  later  works,  to 
those  in  which  he  maintained  what  in  opposition  is 
called  the  Banking  Principle. 

The  reasons  given  by  the  writers  who  support  the 

1  History  of  Prices,  1839-47,  pp.  xi-xii. 


MR.  TOOKE'S  VIEWS.  427 

Banking  Principle,  for  denying  the  possibility  of  the  in- 
flation of  Convertible  Paper  Money,  are  two : 

First,  that  the  additional  notes,  requisite  for  inflation, 
cannot  be  got  out. 

Second,  that,  if  once  out,  they  would  not  stay  out. 

Thus  Mr.  Wilson  says :  "A  currency  'augmented  with- 
out any  corresponding  augmentation  of  internal  trade' 
[Horner]  implies  a  quantity  of  notes  retained  in  circula- 
tion, at  the  will  of  the  issuers,  which  the  public  do  not 
require.  Now,  the  public  do  not  receive  notes  from  a 
banker  without  paying  interest  for  their  use ;  and,  how- 
ever low  that  may  be,  they  will  take  no  more  than  they 
absolutely  require — nor  do  they  retain  notes  in  their 
possession  beyond  what  the  convenience  of  trade  re- 
quires ;  and,  therefore,  if  issued  in  excess  of  that  quan- 
tity, and  if  convertible,  a  portion  would  instantly  be  re- 
turned upon  the  issuers." 

Mr.  Wilson  insists  that,  throughout  the  entire  opera- 
tion of  issue,  banks  are  wholly  passive,  giving  out  just 
what  the  community  require,  and  no  more,  or,  as  Prof. 
Price  expresses  it,  serve  as  "mere  shops  for  the  sale  of 
tools."  "The  prices  of  commodities,"  says  Mr.  Tooke, 
"do  not  depend  upon  the  quantity  of  money, 
but,  on  the  contrary,  the  amount  of  the  circulating  me- 
dium is  the  consequence  of  prices." 

The  first  reason  does  not  seem  to  me  entitled  to  much 
respect.  It  reads  very  much  like  the  old  catch  in  the 
logic  books,  by  which  it  was  proven  that  a  thing  cannot 
move.  A  thing,  if  it  move  at  all,  must  move  either 
where  it  is  or  where  it  is  not.  It  cannot  move  ivhere  it 
is  not.  It  cannot  move  where  it  is.  Therefore  it  cannot 
move  at  all.  And  yet  we  know  that  objects  move.  And, 
as  Mr.  Eicardo  says,  the  argument  by  which  it  is  sought 
to  demonstrate  that  bank-notes  cannot  be  issued  in  ex- 


428  MONEY. 

cess  of  the  amount  of  metallic  money,  would  also  suffice 
to  prove  that  not  an  ounce  of  the  silver  of  Potosi,  or  of 
the  gold  of  California,  could  have  got  into  circulation. 

"Let  us  suppose  all  the  countries  of  Europe  to  carry 
on  their  circulation  by  means  of  the  precious  metals, 
and  that  each  were  at  the  same  moment  to  establish  a 
bank  on  the  same  principles  as  the  Bank  of  England. 
Could  they,  or  could  they  not,  each  add  to  the  metallic 
circulation  a  certain  portion  of  paper?  and  could  they, 
or  could  they  not,  permanently  maintain  that  paper  in 
circulation?  If  they  could,  the  question  is  at  an  end; 
an  addition  might,  then,  be  made  to  a  circulation  already 
sufficient,  without  occasioning  the  notes  to  return  to  the 
bank  in  payment  of  bills  due. 

"  If  it  is  said  they  could  not,  then  I  appeal  to  experi- 
ence, and  ask  for  some  explanation  of  the  manner  in 
which  bank-notes  were  originally  called  into  existence 
and  how  they  are  permanently  kept  in  circulation.  .  . 

"'If  the  principle  advanced  by  the  bank  directors  be 
correct,  not  a  bank-note  could  ever  have  been  perma- 
nently kept  in  circulation,  nor  would  the  discovery  of  tlie 
mines  of  America  have  added  one  guinea  to  the  circulation 
of  England.  The  additional  gold  would,  according  to  this 
system,  have  found  a  circulation  already  adequate  and  in 
which  no  more  could  be  admitted." — [Ricardo,  Reply  to 
Bosanquet.] 


The  question  of  keeping  out  Convertible  Paper  Money 
in  excess,  is  a  wholly  distinct  question ;  and  the  argu- 
ment of  the  advocates  of  the  Banking  Principle,  at  this 
point,  is  entitled  to  more  respectful  and  careful  treat- 
ment. 

A  metallic  money,  if  it  becomes  excessive,  is  reduced 
by  exportation. 


MR.  TOOKE'S  VIEWS.  429 

A  Convertible  Paper  Money,  if  it  becomes  in  excess, 
cannot  be  exported,  in  its  present  shape ;  but  may  be  re- 
duced by  the  return  of  the  notes  to  the  issuer,  with  a 
demand  for  gold  for  exportation. 

An  Inconvertible  Paper  Money  can  be  reduced  neither 
by  direct  exportation  nor  by  return  to  the  issuer. 

The  question  at  issue  is  whether,  in  the  case  of  a  Con- 
vertible Paper  Money,  the  reduction  takes  place  with  the 
certainty  and  celerity  required  to  avoid  the  consequences 
of  inflation. 

It  is  claimed  by  the  advocates  of  the  Banking  Princi- 
ple, that  there  is  a  Law  of  Reflux  which  constitutes  an 
ample  security  against  inflation. 

Before  proceeding  to  argue  this  question,  let  it  be 
said  that  it  is  admitted  generally  by  writers  of  this 
school,  that  the  convertibility  of  the  notes  must  be  im- 
mediate and  unconditional,  in  order  to  secure  the  full 
working  of  tne  principle.  "  A  paper  money,"  says  Adam 
Smith,  "consisting  in  bank-notes,  issued  by  people  of 
undoubted  credit,  payable  upon  demand  without  any 
condition,  and  in  fact  always  readily  paid  as  soon  as 
presented,  is  in  every  respect  equal  in  value  to  gold  and 
silver  money.  .  . 

"  It  would  be  otherwise,  indeed,  with  a  paper  money 
consisting  in  promissory  notes,  of  which  the  immediate 
payment  depended,  in  any  respect,  either  upon  the  good 
will  of  those  who  issued  them,  or  upon  a  condition 
which  the  holder  of  the  notes  might  not  always  have  it 
in  his  power  to  fulfill,  or  of  which  the  payment  was  not 
exigible  till  after  a  certain  number  of  years,  and  which 
in  the  mean  time  bore  no  interest."  .  ..  . 

"Some  years  ago  the  different  banking  companies  of 
Scotland  were  in  the  practice  of  inserting  into  their 
bank-notes  what  they  called  an  optional  clause,  by 
36* 


430  MONEY. 

which  they  promised  payment  to  the  bearer,  either  as 
soon  as  the  note  should  be  presented,  or,  in  the  option 
of  the  directors,  six  months  after  such  presentment,  to- 
gether with  legal  interest  for  the  said  six  months."  Ad- 
vantage, says  Dr.  Smith,  was  often  taken  of  this  by  di- 
rectors to  induce  note-holders  to  take,  cash  down,  a  part 
of  what  they  wanted. — [Wealth  of  Nations,  i,  326.] 

Given  a  paper  money  immediately  and  uncondition- 
ally convertible,  "the  reflux,"  says  Mr.  Tooke,  "takes 
place  chiefly  in  two  ways ;  by  payment  of  the  redundant 
amount  to  a  banker  on  a  deposit  aacount,  or  by  the  re- 
turn of  notes  in  discharge  of  securities  on  which  ad- 
vances have  been  made.  A  third  way  is  that  of  a  return 
of  the  notes  to  the  issuing  bank  by  a  demand  for  coin. 
The  last  seems,  in  the  view  of  the  currency  theory,  to 
be  the  only  way  by  which  a  redundancy,  arising  from 
the  unlimited  power  of  issue,  which  they  assume  to  ex- 
ist, admits  of  being  corrected,  in  a  convertible  state  of 
the  paper ;  it  is  certainly  the  one  least  in  use." — [Hist. 
of  Prices,  1839-47,  p.  185.] 

The  paragraph  here  quoted  requires  us  to  note  a  dis- 
tinction which  did  not  emerge  until  comparatively  late 
in  the  discussion.  How,  ask  the  advocates  of  the  Bank- 
ing Principle,  can  a  convertible  currency  be  maintained 
in  excess?  If  we  say  that  the  paper  is  issued  in  excess, 
we  assert  that  it  is  depreciated.  If  depreciated,  a  pre- 
mium on  gold  will  arise,  the  faintest  beginnings  of  which 
will  be  sufficient  to  bring  the  paper  back  to  the  bank, 
to  secure  the  profit  arising  from  the  premium. 

But,  answer  Mr.  Norman  and  Lord  Overstone,  when  we 
say  that  Convertible  Paper  Money  is  issued  in  excess, 
we  do  not  mean  that  paper  is  depreciated  in  comparison 
with  gold.  We  assert  that  the  ivhole  money  of  the  country 
paper  and  gold,  undistinguishabfy,  is  depreciated  in  compar- 


MR.  TOOKE'S  VIEWS.  431 

ison  with  the  money  of  other  countries.  We  do  not  assert 
that  such  an  effect  can  be  produced  to  an  indefinite  ex- 
tent, or  maintained  for  an  indefinite  period.  We  admit 
that  such  a  depreciation  of  the  whole  body  of  the  mon- 
ey of  a  country — its  lower  "local  value" — must  so  en- 
courage imports  and  so  discourage  exports,  as  ultimate- 
ly to  bring  the  volume  back  to  the  level  of  a  purely  me- 
tallic money.  But  we  assert  that  the  inflation  may  pro- 
ceed so  far  and  be  maintained  so  long,  as  to  originate 
evils  of  the  most  momentous  character  in  the  produc- 
tion and  trade  of  a  country.  We  also  assert,  that  when 
the  reaction  sets  in,  it  is  likely  to  be  so  sudden  and  so 
violent  as  not  only  to  bring  the  volume  of  money  back 
to  the  proper  level,  but  for  a  time  to  carry  it  even  below 
that  level,  which  fact  will,  of  itself,  become  a  new  cause 
of  industrial  and  commercial  distress  and  loss. 

Such  was  the  position  of  the  Currency  School.  Con- 
vertibility is  a  security  against  permanent  excess  of  the 
currency,  and  fixes  a  limit  beyond  which  irregularity 
cannot  be  carried ;  but  the  principle  comes  into  opera- 
tion only  through  the  medium  of  prices.  This  had  been 
Mr.  Tooke's  own  view,  in  his  pamphlet  of  1826.  "  It 
not  unfrequently  requires  an  interval  of  some  length,  be- 
fore the  commodities  which  are  interchangeable  with 
other  countries  are  affected  by  an  excess  in  circulation, 
in  such  a  degree  as  to  produce  the  effect  of  increased 
import  and  diminished  export." — [P.  90.] 

"  It  is  very  true,"  said  Mr.  Norman  in  his  work  on 
"  Currency  and  Banking,"  "that  convertible  paper  cannot 
permanently  be  depreciated ;  that  it  must  at  length  be- 
come equivalent  to  the  specie  it  represents ;  but,  under 
certain  circumstances,  the  adjustment  may  be  long  de- 
ferred." 

"Mere  convertibility  of  the  paper,"  s^id  Mr.  Henry 


432  MONEY. 

Drtimmond,1  "is  sufficient  to  prevent  its  ultimate  de- 
preciation, and  to  make  the  currency  right  itself.  .  .  . 
But  mere  convertibility  is  not  sufficient  to  prevent  ru- 
inous vacillations,  ebbs  and  flows,  to  an  immense  ex- 
tent. .  .  .  The  mere  convertibility  of  paper  can- 
not check  depreciation  until  it  has  proceeded  great 
lengths."2 

It  needs  to  be  borne  in  mind  that  the  advocates  of 
the  Currency  Principle  do  not  generally  assert  that  the 
banks  can  force  their  notes  into  circulation,  irrespective 
of  the  condition  of  trade;  nor  do- they  generally  claim 
that  the  speculative  impulses  which  allow  inflation  to 
take  place  are  due,  primarily  or  principally,  to  re- 
dundancy of  money.  "Fluctuations  in  the  amount  of 
the  currency,"  said  Lord  Overstone,3  "are  seldom  if 
ever  the  original  and  exciting  cause  of  fluctuations  in 
prices  and  in  the  state  of  trade.  The  buoyant  and  san- 
guine character  of  the  human  mind ;  miscalculations  as 
to  the  relative  extent  of  supply  and  demand ;  fluctua- 
tions of  the  seasons ;  changes  of  taste  and  fashion ;  leg- 
islative enactments  and  political  events ;  excitement  or 
depression  in  the  condition  of  other  countries  connected 
with  us  by  active  trading  intercourse ;  an  endless  vari- 
ety of  casualties  acting  upon  those  sympathies  by  which 
masses  of  men  are  often  urged  into  a  state  of  excitement 
or  depression ;  these,  all  or  some  of  them,  are  generally 
the  original  exciting  causes  of  those  variations  in  the 
state  of  trade  to  which  the  report  refers.  The  manage- 

1  Elementary  Propositions  respecting  the  Currency. 

2  The  doctrine  that  paper  money  is  liable  to  be  issued  in  excess, 
has  been  strongly  supported  by  Ph.  G-eyer  in  his  work,  "  Theorie  und 
Praxis  des  Zettelbankwesens."     Not  a  few  of  the.  German  econ- 
omists incline  to  the  same  view. 

8  Tracts,  «tc.,  p.  1<>7. 


MR.  TOOKE'S  VIEWS.  433 

ment  of  the  currency  is  a  subordinate  agent ;  it  seldom 
originates,  but  it  may  and  often  does  exert  a  consider- 
able influence  in  restraining  or  augmenting  the  violence 
of  commercial  oscillations." 

"  When  speculation  is  once  on  foot,"  wrote  Mr.  Tooke 
in  1826,  "with  a  circulation  of  the  expansive  nature  of 
ours,  the  rise  of  any  one  article  may  not  only  be  in  a 
ratio  far  greater  than  the  occasion  really  calls  for,  but, 
by  increasing  the  aggregate  of  the  circulating  medium, 
may  cause  indirectly  a  rise  in  other  commodities." — 
[State  of  the  Currency,  p.  45.] 

Again,  writing  of  English  trade  in  1824:  "This  in- 
crease of  the  circulation  at  the  present  time,  when  the 
urgent  necessity  of  a  reduction  of  the  issues,  or,  at 
any  rate,  of  a  limitation  of  them,  was  so  strongly  indi- 
cated, could  not  fail  of  promoting,  though  it  had  not  ex- 
cited, the  tendency  which  then  existed  to  extravagance 
of  speculation.  .  .  .  The  Bank  had  not  kindled  the 
fire,  but,  instead  of  attempting  to  stop  the  progress  of 
the  flames,  it  supplied  fuel  for  maintaining  and  extend- 
ing the  conflagration." — [Hist,  of  Prices,  ii,  178.] 

And  of  the  final  consequences  of  such  inflation,  he 
says:  "The  factitious  increase  of  a  medium  of  paper 
and  credit,  raising  the  prices  of  commodities  and  of  the 
public  funds  above  the  level  which  the  metallic  basis  of 
the  currency  can  support,  must  be  succeeded,  not  only 
by  a  destruction  of  all  that  artificial  medium,  but  by  a 
temporary  contraction  of  the  circulation  below  the  level 
from  which  that  enlargement  took  place." — [State  of  the 
Currency,  p.  63-4.] 

It  will  be  observed  that  Mr.  Tooke,  in  these  sentences, 
quoted  from  his  earlier  works,  asserts  that  inflation  (be- 
yond the  limits  of  metallic  money)  only  takes  place 
when  a  tendency  to  speculation,  otherwise  induced, 
already  exists. 


434  MONEY. 

"In  the  absence  of  inducement  from  the  state  of  the 
markets  to  speculate  in  goods,  if  extra  notes  were  is- 
sued, they  would  either  have  returned  in  the  shape  of  de- 
posits into  the  hands  of  the  Bank,  or  have  remained  in- 
ert in  the  drawers  of  bankers." — [Hist,  of  Prices,  ii,  64.] 


I  confess  that  to  my  mind  there  appears  no  more  dif- 
ficulty in  believing  that  the  commercial  community  will 
take  up  and  hold  more  money  when  agitated  by  a  specu- 
lative impulse  and  flushed  with  expectation  of  extraor- 
dinary gains,1  than  in  believing  that  water  will  retain 
more  of  a  certain  salt  in  solution  when  heated  than 
when  cold.  "The  public,"  says  Mr.  Wilson,  "do  not 
receive  notes  from  a  banker  without  paying  interest  for 
their  use,  and,  however  low  that  may  be,  they  will  take 
no  more  than  they  absolutely  require."  But  is  it  true 
that  men  are  always  equally  solicitous  to  save  on  their 
interest  account?  always  equally  careful  in  expenditure? 
Surely  not.  At  one  time  the  man  of  business  is  mainly 
intent  on  saving,  seeking  not  so  much  to  enhance  his 
gross  profits,  which,  in  the  state  of  trade,  he  may  know 
is  impracticable,  as  to  economize  in  his  outgoings. 
These  are  ordinary  times,  dull  times,  when  opportuni- 
ties for  exceptional  gains  do  not  present  themselves. 
At  another  time,  the  man  of  business  gives  his  thought, 
his  effort,  his  care,  more  to  gaining  than  to  saving ;  he 
is  ready  to  spend  liberally,  it  may  be  lavishly,  because 

1  "In  most  countries,  but  especially  in  England,  there  is  at  all 
times  a  profusion  of  enterprises  to  be  undertaken;  of  experiments 
to  be  tried ;  of  schemes  to  be  worked  out ;  of  improvements  to  be 
made ;  of  ingenious  men  to  be  set  up  with  capital ;  of  trades  already 
profitable  to  be  made  more  so  by  vast  extensions." — [Wm.  New- 
march,  The  New  Supplies  of  Gold,  p.  71.] 


MR.  TOOKE'S  VIEWS.  435 

lie  sees,  or  thinks  he  sees,  opportunities  to  make  excep- 
tionally high  profits  on  his  ventures.  These  are  good 
times,  flush  times.  At  such  a  period,  men  do  not  scru- 
tinize the  contents  of  their  tills,  or  the  entries  in  their 
deposit-books,  to  see  if  they  can  contrive  to  reduce  their 
dead  stock  or  their  interest  account. 

Again,  though  speculation  and  overtrading  do  not 
usually  originate  in  an  excess  of  money,  the  fact  that 
they  find  in  circulation  a  medium  which  can  be  rapidly 
increased  at  will,  without  cost,  and  which  will  thus  re- 
spond without  strain,  so  to  speak,  to  the  rising  demands 
of  trade,  surely  must  enable  speculation  and  overtrading 
to  proceed  faster  and  further  than  would  be  practicable 
if  the  money  needed  to  support  the  higher  prices  had  to 
be  called  in  from  foreign  countries,  and  actual  solid 
value  given  in  exchange  for  it.  When,  therefore,  Mr. 
Wilson  asserts  that  the  public  do  not  "retain  notes  in 
their  possession  beyond  what  the  convenience  of  trade 
requires,"  the  advocate  of  the  Currency  Principle  re- 
joins that  the  higher  prices  resulting  from  a  general 
speculative  movement  of  trade  actually  require  more 
money ;  and  hence  that  the  public  will  retain  the  addi- 
tional amount  of  notes  in  circulation,  paying  for  their 
use,  for  the  same  reason  which  led  them  to  retain,  and 
pay  for  the  use  of  the  notes  previously  in  circulation. 

It  is  manifest  that,  if  banks  have  the  ability  in  times 
of  speculative  impulse  thus  to  increase  their  issues,  or 
if  there  is  in  trade,  without  any  conscious  purpose  on 
the  part  of  bank  managers,  a  tendency  to  call  out  paper 
money  from  the  banks  more  rapidly  or  more  extensively 
than  metallic  money  would,  under  the  same  circum- 
stances, have  been  called  in  from  other  countries,  this 
movement  will  necessarily  be  assisted  by 


436  MONEY. 

COMPETITION  AMONG  ISSUEES. 

"  The  paper  issues  of  this  country,"  wrote  Lord  Over- 
stone  in  1840,  "are  .  .  .  competing  issues,1  each 
endeavoring  to  encroach  upon  the  other,  and  to  appro- 
priate to  itself,  at  the  expense  of  its  competitors,  a 
larger  proportion  of  the  whole  circulation  of  the  coun- 
try. .  .  .  Hence  it  arises  that  an  expansion  by  one 
issuer  may  very  naturally  lead  to  a  corresponding  ex- 
pansion by  the  other  issuers.  Such  is  the  legitimate 
result  of  competitive  action." 2 

In  the  same  view,  Mr.  McCulloch  says  of  the  country 
banks  of  England  prior  to  1844:  "  Being  a  very  numer- 
ous body,  comprising  several  hundred  establishments, 
scattered  over  all  parts  of  the  country,  each  is  impressed 
with  the  well-founded  conviction  that  all  he  could  do  in 
the  way  of  contraction  would  be  next  to  imperceptible, 
and  no  one  ever  thinks  of  attempting  it  so  long  as  he  is 
satisfied  of  the  stability  of  those  with  whom  he  deals. 
On  the  contrary,  every  banker  knows,  were  he  to  with- 
draw a  portion  of  his  issues,  that  some  of  his  competitors 
would  most  likely  embrace  the  opportunity  of  filling  up 

1  Prof.  Jevons  finds  "  an  evident  flaw  "  in  the  position  of  those 
writers  who  hold  that  it  is  impossible  to  overissue  convertible  paper 
money.     "  When  prices,"  he  says,  "  are  at  a  certain  level  and  trade 
in  a  quiescent  state,  a  single  banker  is,  no  doubt,  unable  to  put  into 
circulation  more  than  a  certain  quantity  of  bank-notes.     He  cannot 
produce  a  greater  effect  upon  the  whole  currency  than  a  single  pur- 
chaser can,  by  his  sales  or  purchases,  produce  upon  the  market  for 
corn  or  cotton.     But  a  number  of  bankers,  all  trying  to  issue  addi- 
tional notes,  resemble  a  number  of  merchants  offering  to  sell  corn  for 
future  delivery ;  and  the  value  of  gold  will  be  affected,  as  the  price 
of  corn  certainly  is." — [Money  and  the  Mechanism  of  Exchange, 
pp.  314-5.] 

2  Tracts,  pp.  97-8,  of.  pp.  115,  122-3. 


MR.  TOOKE'S  VIEWS.  437 

up  the  vacuum  so  created,  and  that  consequently  he 
should  lose  a  portion  of  his  business,  without  in  any 
degree  lessening  tlie  amount  of  paper  afloat.  Hence,  in 
nineteen  out  of  twenty  cases,  the  country  banks  go  on 
increasing  their  aggregate  issues  long  after  the  exchange 
has  been  notoriously  against  the  country ;  and  when  at 
last  they  are  compelled,  because  of  the  altered  state  of 
things  in  the  metropolis,  to  pull  up,  the  chances  are 
ten  to  one  that  the  contraction  is  carried  to  an,  improper 
extent." — [Notes  to  Smith's  Wealth  of  Nations.] 

In  consonance  with  their  general  views,  the  advo- 
cates of  the  Currency  Principle  hold  to  the  necessity  of 
closely  restricting  the  power  of  issue,1  while  the  advo- 
cates of  the  Banking  Principle  cannot  admit  this  to  be 
necessary. 

"  Kival  issuers,"  said  Lord  Overstone,  "  equal  in 
power  and  unlimited  in  number,  on  the  one  hand, — a 
single  issuer,  limited  in  his  franchise  but  invested  with 
plenary  power  for  the  discharge  of  them,  on  the  other 
hand — are  the  respective  principles." — [Tracts,  etc.,  p. 
117.] 

Indeed,  as  tne  advocates  of  the  Banking  Principle 
hold  that  Convertible  Paper  Money  cannot  be  issued  in 
excess,  they  are  bound  to  hold  a  high  degree  of  com- 
petition in  issues  to  be  desirable.  Individual  issuers, 
writes  Prof.  Price,2  "  are  proved  by  experience  to  cover 

1  "  We  do  not  want  an  abundant  supply  of  cheap  promissory  pa- 
er."— [Sir  Robert  Peel] 

2  While  Prof.  Price  asserts  that  the  principles  of  money  have  noth- 
ing to  do  with  the  question  whether  there  shall  be  one  issuer  or 
many,  this  being  a  matter  "  of  pure  detail,  of  time  and  place,  of  local 
circumstances  and  habits"  [p.  152],  he  admits  that,  as  a  branch  of 
banking,  the  power  of  issue  is  so  liable  to  abuse  as  properly  to  be- 
come the  subject  of  regulation  by  the  State. 

"  It  may  be  perfectly  reasonable  for  the  law  to  say  that  no  man 


4:38  MONEY. 

the  land  far  more  speedily  and  more  effectually  than 
the  notes  of  a  central  institution." — [Principles  of  Cur- 
rency, p.  153.]  t 

The  question  of  holding  the  power  of  issue  under 
strict  control,  or  of  breaking  it  up  [fractionnement  du 
privilege  d 'emission]  among  many  institutions,  with  the 
result  of  competition  in  issues,  has  also  divided  the 
economical  opinion  of  France,  where  the  monopoly  of 
the  Bank  of  France1  makes  the  question  a  very  practical 
one.  MM.  Chevalier,  Coquelin  and  Courcelle  Seneuil,2 

shall  be  allowed  to  incur  so  vast  a  debt  to  the  public,  to  an  immense 
aggregate  of  individuals,  all  accepting  these  debts  as"  a  matter  of 
course,  almost  without  any  choice  in  the  matter,  unless  he  gives 
some  security  for  repayment." 

"  The  individual  efforts  of  each  private  person  for  himself  are  in- 
sufficient to  procure  the  safety  which  is  indispensable  for  him  and 
the  rest  of  the  world.  The  state  must  be  summoned  to  do  what  it 
alone  can  perform." 

Mr.  Tooke,  even  in  his  later  writings,  strongly  asserted  the  ne- 
cessity of  a  government  regulation  of  issues,  as  a  branch  of  banking. 
"I  agree,"  he  says,  "with  a  writer  in  one  of  the  American  papers, 
who  observes  that  free  trade  in  banking  is  synonymous  with  free 
trade  in  swindling."  ..."  The  claims  of  right  to  such  freedom 
of  action  in  banking  ought  to  be  strenuously  resisted.  They  do  not 
rest  in  any  manner  on  grounds  analogous  to  the  claims  of  freedom 
of  competition  in  production.  .  .  .  The  issue  of  paper  substitutes 
for  coin  is  no  branch  of  productive  industry.  It  is  a  matter  for  regu- 
lation by  the  State  with  a  view  to  general  convenience,  and  comes 
within  the  province  of  police." — [Hist,  of  Prices,  iii,  206-7.] 

1  This  monopoly  was  threatened,  curiously  enough,  as  an  incident 
to  the  annexation  of  Savoy,  after  the  Italo-Franco- Austrian,  war. 
The  Bank  of  Savoy,  having  rights  of  issues  while  that  province  be- 
longed  to  Italy,  claimed   to  retain  those  rights  after  annexation, 
which  would  have  substituted  an  unintentional  duopoly  for  the  pre- 
viously existing  monopoly. 

2  "  Soit  qu'une  seule  banque  jouisse  du  privilege  exclusif  d'emettre 
des  billets,  soit  que  plusieurs  banques,  stimulees  par  la  concurrence 


MR.  TOOKE'S  VIEWS.  439 

with  whom  are  perhaps  the  majority  of  well-known 
writers,  have  advocated  competition  in  issues,  deeming 
the  American  system  the  most  desirable,  for  imitation. 
M.  Wolowski,  with  whom  are  MM.  Rossi  and  Leon 
Faucher,  has  defended  the  restrictive  and  regulative 
principles  of  the  English  system. 

SMALL  NOTE  ISSUES. 

Besides  the  question  of  competition  in  issues,  still 
another,  that  of  small  notes,  entered  prominently  into 
the  discussions  respecting  Convertible  Paper  Money 
in  England,  prior  to  the  Act  of  1844.  In  1826,  Mr. 
Tooke  had  written : 

"There  is  one  part  of  that  circulation  which  ought 
not,  upon  any  footing,  or  with  any  modification,  to  be 
any  longer  tolerated.  I  mean  the  notes  under  X5. 
These  are,  in  every  point  of  view,  a  most  objectionable 
medium  of  exchange.  They  offer  greater  facilities  for 
being  issued  in  excess  than  notes  of  a  higher  denomination  ; 
and  they  almost  invariably  exclude  specie  entirely  from  the 
districts  where  tliey  pass  current.  .  .  . 

"It  is  quite  idle  to  contend  that  the  lower  classes 
have  the  option  of  refusing  to  take  the  country  notes. 
Practically,  in  the  great  majprity  of  instances,  they  have 
not  and  cannot  have  any  such  option." 

The  public  sentiment  of  England  was  set  strongly 
against  small  notes  by  the  experience  of  1825,  which 
Mr.  Tooke  had  in  mind  when  writing  the  above  para- 
graph ;  and,  as  is  well  known,  small  notes  are  excluded 
from  the  circulation  of  the  kingdom.  The  same  objec- 

essayent  de  forcer  les  Emissions,  le  resultat  est  exactement  le  meme ; 
il  est  impossible  de  depasser  le  chiffre  fixe  par  les  besoins  du  service 
des  echanges." — [Op.  de  Banque,  p.  200.] 


440  MONEY. 

tion.to  small  notes  has  been  exhibited  by  economical 
writers  generally  on  this  side  the  Atlantic. 

On  the  other  hand,  Prof.  Price  sees  no  reason,  so  far 
as  the  principles  of  currency  are  concerned,  why  small 
notes  should  not  issue  without  restraint;  and  declares 
that  "one-pound  notes  are  a  glory  to  Scotland  at  this 
very  hour." — [Principles  of  Currency,  p.  154.]  Mr.  Wil- 
son, in  his  work  on  "Currency  and  Banking,"  makes  a 
pl'ea  for  the  issue  of  one-pound  notes  by  the  Bank  of 
England,  declaring  that  the  money  of  the  kingdom  would 
be  greatly  economized  thereby.  The  prejudice  against 
one-pound  notes,  he  asserts,  arose  during  the  Suspen- 
sion; but  should  in  reason  have  equally  applied  to 
five-pound  notes.  The  strictly  economical  arguments 
of  those  who  advocate  the  suppression  of  small  notes 
are  three :  first,  as  stated  by  Mr.  Tooke  in  the  paragraph 
cited,  that  they  are  more  liable  to  be  issued  in  excess 
than  larger  notes,  being  at  best  but  imperfectly  convert- 
ible \i.  e.,  the  holders  being,  through  ignorance,  through 
poverty,  or  through  distance,  unable  in  fact  to  present 
them  for  redemption].  It  was  probably  due  to  this 
cause  that  when  the  Bank  of  England,  in  1817,  as  pre- 
viously recited  [see  p.  356],  offered  to  redeem  in  coin 
its  one-pound  and  two-pound  notes,  a  small  demand 
was  made  upon  its  coffers,  while  an  offer  to  redeem  the 
larger  notes  brought  in  such  a  mass  of  paper  for  re- 
demption as  compelled  the  Bank  to  abandon  its  project. 

Second,  that  the  circulation,  among  the  masses  of  the 
people,  of  coin  which  would  (by  Sir  Thomas  Gresham's 
law)  be  displaced  by  small  notes,  constitutes  the  best 
possible  reserve  for  the  banks  issuing  notes.  In  his 
work  published  in  1826,  Mr.  Tooke  quotes  Mr.  Baring's 
evidence  before  the  Committee  of  1819  as  showing,  by 
the  example  of  the  Bank  of  France  in  1817  and  1818, 
"the  comparative  facility  with  which  the  coffers  of  a 


MR.  TO.OKE'S  VIEWS.  441 

bank  which  has  suffered  too  great  a  reduction  of  its  re- 
serves by  imprudent  issues  of  paper,  may  be  replen- 
ished out  of  a  circulation  consisting  in  great  proportion 
of  coin,  notwithstanding  a  coincident  demand  for  large 
payments  abroad."1 

"Their  bullion,"  said  Mr.  Baring,  "was  reduced  by 
imprudent  issues  from  117,000,000  francs  to  34,000,000 
francs,  and  has  returned,  by  more  prudent  and  cautious 
measures,  to  100,000,000  francs.  It  must,  however,  be 
always  recollected  that  this  operation  took  place  in  a 
country  every  part  of  the  circulation  of  which  is  sat- 
urated with  specie." 

And  it  is  at  this  point  that  a  fair  criticism  of  Prof. 
Price's  position  respecting  small  notes  suggests  itself. 
On  the  assumption  that  bank-notes  are  convertible,  that 
able  writer  throws  not  a  little  ridicule  upon  the  small- 
note-prohibition.  If  convertible  £5  and  .£10  notes  are 
good,  why  not  convertible  £1  and  £2  notes?  But  the 
specie  circulation  which  the  XI  and  £2  notes  would  re- 
place is  one  of  the  prime  means  relied  upon  by  many 
economists  of  Prof.  Price's  own  school,  for  making  the 
higher  notes  convertible.  If  a  paper  money  is  convert- 
ible, it  is,  as  Prof.  Price  admits,  not  because  it  is  called 
so,  but  because  it  is  made  so  and  kept  so. 

The  third  argument  of  those  who  advocate  small- 
note-prohibition  is  that,  while  the  small  notes  are  im- 
perfectly convertible,  being  liable  to  be  put  out  and  kept 
out  in  excess  in  ordinary  times,  owing  to  the  want  of  in- 
formation on  the  part  of  holders,  or  their  inability  to 
present  the  notes  for  redemption  promptly  and  in  the 
right  place,  the  very  ignorance  of  the  masses  may  at 
times  render  this  the  most  dangerous  element  of  the 
money  of  a  country,  since  the  uneducated  are  the  first 

1  State  of  the  Currency,  p.  111. 

37* 


442  MONET. 

subjects  of  panic,  and,  after  tolerating  bad  money  for  a 
long  period,  are  apt,  on  the  occurrence  of  any  alarm,  to 
rush  to  the  opposite  extreme  and  give  way  to  unreason- 
ing apprehensions,  besieging  the  doors  of  the  bank,  be- 
yond all  control  or  influence  by  argument  or  persuasion, 
and  bringing  down  mischief  upon  themselves  and  the 
community.  The  issue  of  small  notes,  said  Mr.  Horsley 
Palmer,  "renders  the  bank  liable  to  a  very  great  sud- 
den demand.  .  .  .  The  holders  of  small  notes  are 
the  lower  orders  of  the  people,  whose  fears  are  more  ex- 
tensively acted  upon  in  times  of  distrust."  It  was  the 
testimony  of  the  officers  of  the  Bank  of  England  that 
this  portion  of  the  issues  was  the  main  source  of  dan- 
ger in  1825. 

The  argument,  in  this  connection,  from  the  higher 
claim  which  the  poorer  classes,  by  reason  of  their  help- 
lessness, have  upon  the  consideration  of  government,  is 
mainly  a  political  argument  and  we  need  not  entertain  it 
here. 

The  argument  from  the  greater  facility  of  counterfeit- 
ing1 in  the  case  of  small  notes,  is  at  least  worth  notic- 
ing. The  Act  for  authorizing  the  Bank  of  England  to 
stop  payment,  in  1797,  was  followed,  as  a  matter  of  ne- 
cessity, by  an  Act  enabling  the  Bank  to  issue  notes  under 
£5.  The  result  was  a  monstrous  increase  of  forgery. 
In  the  twenty-one  years  preceding  1797  there  had  been 
but  five  or  six  executions  for  this  crime.  In  the  twenty- 
one  years  between  1797  and  1818,  313  persons  suffered 
death  for  counterfeiting  bank-notes. 

1  "  Doubtless,  too,  they  can  be  more  easily  forged ;  and  this  is  a 
practical  reason  of  great  weight.  Still  it  is  not  a  reason  derived 
from  any  principle  of  currency ;  it  is  a  reason  of  mechanics,  of  manu- 
facturing, on  which  a  political  economist  need  not  dwell,  when  ex- 
pounding the  principles  of  currency." — [Price,  Principles  of  Currency, 
p.  155.] 


CHAPTEE  XX. 

CONVERTIBLE  PAPER  MONEY  IN  ENGLAND. 

SUCH,  with  the  incidents  described,  being  the  issue  be- 
tween the  two  schools  of  English  economists,  advocating, 
severally,  what  are  known  as  the  Currency  Principle  and 
the  Banking  Principle,  let  us  trace  the  progress  of  the 
doctrines  of  the  former  school  up  to  their  embodiment 
in  the  Bank  Act  of  1844. 

In  1819,  says  Lord  Overstone,  "terminates  the  Dark 
Age  of  Currency."  Up  to  this  date  the  directors  of  the 
Bank  had  stood  on  the  Banking  Principle,  maintaining 
that  good  banking  was  all  that  was  necessary  to  give  the 
country  good  money ;  and  in  the  very  year  named  the 
Bank  sent  'to  a  Parliamentary  Committee  a  resolution 
[March  25]  in  the  following  words : 

"  That  this  Court  cannot  refrain  from  adverting  to  an 
opinion  strongly  insisted  on  by  some,  that  the  Bank  has 
only  to  reduce  its  issues  to  obtain  a  favorable  turn  in 
the  exchanges,  and  a  consequent  influx  of  the  precious 
metals ;  the  Court  conceives  it  to  be  its  duty  to  declare 
that  it  is  unable  to  discover  any  solid  foundation  for 
such  a  sentiment." 

But  the  views  of  the  directors  did  not  prevail.  "  The 
reports  of  the  select  committees  of  both  Houses  of 
Parliament  upon  the  expediency  of  resuming  cash  pay- 


444  MONEY. 

ments,  in  1819,  were  founded  upon  the  adoption  of  the 
doctrine  of  the  Bullionists,  and  from  that  time  it  may 
be  said  that  the  principles  of  currency,  as  expounded 
by  them,  have  supplanted  the  so-called  practical  views l 
which  had  previously  prevailed,  and  have  been  recog- 
nized by  the  public  sentiment,  as  the  code  of  laws  by 
which  the  monetary  system  of  the  country  ought  to  be 
governed." — [Lord  Overstone,  Tracts,  p.  53.] 

"  The  next  well-defined  step,"  continues  Lord  Ove'r- 
stone,  "  in  the  progress  of  public  intelligence  upon  the 
subject  of  currency  was  at  the  period  ot  the  appointment 
of  the  Parliamentary  Committee,  preparatory  to  the 
renewal  of  the  bank  charter,  in  1832.2  The  evidence 
given  by  the  most  intelligent  of  the  Bank  directors  on 
that  occasion  contrasts  in  the  most  extraordinary  man- 
ner with  the  evidence  given,  under  similar  circum- 
stances, only  thirteen  years  before." — [Ibid.,  p.  58.] 

Yet,  notwithstanding  this  movement  of  public  senti- 
ment and  of  Bank  opinion  on  the  subject,  the  position 
of  the  Bank  relative  to  the  money-supply  of  the  king- 
dom was  still,  in  the  opinion  of  the  Currency  School, 
exceedingly  unsatisfactory.  "The  banking  reserve  was 
a  vague  and  undefined  quantity.  It  was  the  power  of 
issuing  any  amount  of  notes,  until  the  gold  was  finally 

1  Lord  Overstone  [Tracts,  pp.  45,  52,  53],  though  himself  a  banker, 
expresses  great  contempt  for  the  uninstructed  "practical  views"  of 
the  Bank  and  the  City.  Prof.  Price,  who  holds  widely  different 
opinions,  concurs  heartily  in  this  sentiment — see  his  "  Principles  of 
Currency,"  pp.  1-6. 

8  "  Many  matters  of  moment  date  from  that  inquiry ;  such  as  the 
publication  of  the  accounts  of  the  Bank,  the  publication  of  the 
amount  of  bullion  held  by  the  Bank,  and  the  partial  adoption  of  the 
principle  of  currency  by  which  the  Bank  of  England,  as  well  as  the 
country  banks'  circulation,  should  be  regulated  by  the  state  of  foreign 
exchanges." — [Levi,  Hist.  Br.  Com.,  p.  204.] 


PAPER-MONEY  BANKING.  445 

exhausted ;"  while  "a  reduction  of  deposits  was  deemed 
a  sufficient  set-off  against  a  reduced  amount  of  bullion." 
-[Ibid.,  p.  328.] 

The  root  of  the  evil,  in  this  writer's  view,  lay  in  the 
union,  in  the  same  institution,  of  the  two  functions  of  a 
bank  of  issue  and  of  a  bank  of  deposit  and  discount. 


As  to  the  absence  of  any  necessary  relation  between 
banking  and  paper  money,  there  is  substantial  unanim- 
ity among  economists. 

"This  accidental,  or  rather  non-essential,  connection 
of  notes  with  banking,"  says  Prof.  Price,  "  is  alas !  the 
parent  of  interminable  confusion.  It  is  the  plague  spot 
of  all  currency ;  the  foreign  and  insoluble  ingredient, 
which  will  neither  itself  crystallize,  nor  suffer  the  other 
elements  to  crystallize." — [Principles  of  Currency,  p. 
104.] 

In  the  same  view,  Mr.  Norman  :  "No  correct  notions 
can  ever  be  formed  upon  the  subject  of  currency,  unless 
the  business  of  issue  be  clearly  separated  in  the  read- 
er's mind  from  the  other  transactions  which  form  the 
real  and  legitimate  employment  of  the  banker." 

"Issuing,"  says  Mr.  Nicholson,  "is  creating  money; 
banking  is  managing  money  after  it  has  been  issued." — 
[Sc.  of  Exchanges,  p.  46.] 

But  no  writer  has  so  fully  developed  the  theme  that 
there  is  no  necessary  connection  between  banking  and 
paper  money  as  Lord  Overstone  : 

"A  bank  of  issue  is  intrusted  with  the  creation  of  the 
circulating  medium,  a  bank  of  deposit  and  discount  is 
concerned  only  with  the  use,  distribution  or  applica- 
tion of  that  circulating  medium.  The  sole  duty  of  the 
former  is  to  take  efficient  means  for  issuing  its  paper 
38 


446  MONEY. 

money  upon  good  security,  and  regulating  the  amount 
of  it  by  one  fixed  rule.  The  principal  object  and  busi- 
ness of  the  latter  is  to  obtain  the  command  of  as  large 
a  proportion  as  possible  of  the  existing  circulating  me- 
dium, and  to  distribute  it  in  such  a  manner  as  shall 
combine  security  for  repayment  with  the  highest  rate  of 
profit." — [Tracts,  p.  31.]  "  The  principles  upon  which 
these  two  branches  of  business  ought  to  be  conducted 
are  perfectly  distinct  and  never  can  be  reduced  to  one 
and  the  same  rule."— \IUd.9  p.  63,  cf.  pp.  30,  115,  139, 
142,  181,  219.] 

While,  however,  economists  are  substantially  agreed 
as  to  the  absence  of  any  necessary  connection  between 
banking  and  paper  money,  Mr.  Tooke  and  the  advo- 
cates of  the  Banking  Principle  do  not  admit  that  the 
union  of  the  two  functions  in  the  same  institution  is  in 
any  way  objectionable.  On  the  contrary,  it  may  not 
only  be  more  economical ;  it  may  better  serve  the  wants 
of  the  community,  each  function  being  more  fully  per- 
formed by  reason  of  the  other  being  carried  on  under 
the  same  management. 

The  advocates  of  the  Currency  Principle,  on  the  other 
hand,  hold  the  union  of  the  two  functions  to  be  pro- 
ductive of  evil.  The  banker  inevitably  sympathizes 
with  expansive  speculations;  therefore  he  should  not 
issue  currency.1  The  union  of  the  two  functions,  of  cir- 
culation and  of  deposits,  is  bound  to  cause  confusion, 
both  in  reasoning  and  in  action. 

The  separation  of  the  banking  and  the  issue  depart- 
ments of  the  Bank  of  England  was,  therefore,  the  first 
object  of  the  economists  of  the  Overstone  school,  as 
rendering  possible  a  regulation  of  the  Bank  issues  ac- 

1  Lord  Overstone,  Tracts,  cf.  pp.  32,  39,  63,  115,  143,  177,  249-50. 


THE  BAFK  A  CT  OF  1844.  447 

cording  to  their  principles.  "A  repeal  of  the  Union," 
Lord  Overstone  wrote  in  1840,  "is  essential  to  good 
government  in  monetary  affairs."  .  .  .  "  The  com- 
mon crown  may  still  rest  upon  the  brow  of  the  sover- 
eign of  Threadneedle  Street,  and  she  may  be  permitted 
to  wield  one  sceptre  of  authority  over  her  separated 
departments.  But  she  must  consent  to  hold  a  Com- 
mittee of  Treasury  in  the  Bullion  Office,  as  well  as  in 
the  Discount  Parlor,  and  must  govern  them  through 
the  instrumentality  of  a  distinct  system  of  laws,  appro- 
priate to  each  and  in  harmony  with  their  respective 
purposes.  The  interest  and  well-being  of  the  one  must 
no  longer  be  interfered  with  or  endangered  by  influences 
or  affections  connected  with  the  other." — [Tracts,  p. 
145.] 

That  repeal  was  effected  by  the  Act  of  1844,1  and  the 
two  departments  of  the  Bank  of  England  are  now  as  dis- 
tinct as  the  customs  and  internal  revenue  bureaus  of 
our  own  government.  By  that  Act  the  Bank  is  allowed 
to  issue  £14,000,000  of  notes  upon  its  securities.  It  is, 
moreover,  provided  that,  on  provincial  banks  ceasing  to 
issue  notes,  the  Bank  may  be  empowered,  by  Order  in 
Council,  to  issue  upon  securities  two-thirds  of  the  notes 
which  such  banks  had  been  authorized  to  put  forth. 
Under  this  condition,2  the  secured  issue  has  risen  to 
£15,000,000.  But  for  every  other  note  which  the  Bank 
may  put  into  circulation,  an  equal  amount  of  coin  or 

1  Supplemented  by  the  Act  of  1845.     I  shall,  however,  speak  of 
the  whole  body  of  this  legislation  as  the  Act  of  1844. 

2  Mr.  Maclaren  states  that  the  application  on  the  part  of  the  Bank 
of  England,  to  issue  notes  in  lieu  of  those  no  longer  issued  by  the 
country  banks,  did  not  originate  with  the  Bank  directors,  but  was 
made  by  them  at  the  instance  of  the  government. — [History  of  the 
Currency,  p.  282.] 


448  MONEY. 

bullion  must  be  paid  in.  Nor  is  it  for  the  directors  to 
say  whether  more  notes  shall  thus  issue  or  not.  The 
Bank  is  bound  by  law  to  buy  bullion  from  whomsoever 
offers  it,  at  £3  17s.  9d.  per  oz. 

It  is  in  view  of  this  entire  exemption  of  the  issue  de- 
partment from  the  will  of  the  directors,  that  Prof.  Price 
speaks  of  the  Bank  as  "  The  Automaton." — [Principles 
of  Currency,  pp..  138, 144.]  "It  is  not,"  he  says,  "a  de- 
partment of  the  Bank  in  any  sense.  It  is  a  self-acting 
institution  of  the  State,  working  on  the  Bank's  premises, 
and  directed  by  rules  laid  down  by -the  State,  and  abso- 
lutely beyond  the  control  of  the  Bank  directors." 

In  the  language  of  Mr.  Neaves,  former  Governor : 
"The  issue  department  is  out  of  our  hands  altogether. 
We  are  mere  trustees  under  the  act  of  Parliament  to 
see  that  these  securities  are  placed  there  and  kept  up 
to  that  amount,  and  in  no  case  can  any  creditor  of  the 
Bank  touch  that  which  is  reserved  for  a  note-holder." 


In  the  provisions  regulating  the  note-issues  which 
have  been  recited  we  have  the  second  grand  feature  of 
the  Act  of  1844,  viz.,  the  establishment  of  the  paper 
circulation  upon  a  basis  which,  in  the  view  of  the  Over- 
stone  school  of  economists,  secures  the  exact  conform- 
ity of  its  movements,  in  rise  and  in  fall,  to  those  of  me- 
tallic money.  The  amount  of  secured  circulation  being 
fixed  at  an  amount  (,£15,000,000)  below  that  to  which  it 
is  reasonably  to  be  supposed  the  metallic  circulation  of 
the  country  could,  in  any  event,  be  re'duced,  the  fabric 
above  that  is  built  up  wholly  out  of  specie.1  Not  a  £5 

1  All  notes  over  the  secured  circulation,  are  "  only  so  many  certifi- 
cates of  the  deposit  of  a  corresponding  amount  of  bullion." — [Nichol- 
son, Science  of  Exchanges,  p.  44.] 

The  bank  is  permitted  to  hold  one-fourth  its  specie  reserves  in 


THE  BANK  A  CT  OF  1844.  449 

note  can  be  issued  from  the  Bank  of  England  unless  the 
corresponding  quantity  of  bullion  has  been  deposited. 
Not  a  £5  note  can  disappear,  except  by  accidental  loss; 
unless  a  corresponding  quantity  of  bullion  has  been 
taken  away  in  exchange  for  it. 

In  Lord  Overstone's  phrase,  the  principle  of  the  Act 
is :  the  amount  of  securities  invariable ;  the  fluctuations 
in  notes  to  correspond  to  fluctuations  in  the  specie  on 
deposit.1  This,  in  his  opinion,  constituted  "free  bank- 
ing" in  the  best  sense. 

"If  they  [the  people]  bring  in  gold,  they  increase  the 
circulation ;  if  they  take  out  gold,  they  diminish  it.  In 
this  respect  they  are  perfectly  free  agents :  neither  law 
nor  authority  interferes  with  them ;  and  thus  the  regu- 
lation of  the  amount  of  the  currency  is  strictly  in  the 
hands  of  the  public."— [Tracts,  p.  320.] 

Thus  we  see  that  the  greatest  bank  in  the  world  is 
not,  as  a  bank,  an  issuer  of  notes,  a  manufacturer  of 
paper  money.  Nor  are  the  joint-stock  banks  of  Lon- 
don, with  their  enormous  deposits  and  discounts,  de- 
pendent in  the  smallest  degree  for  their  power  or  their 
profits  on  note  circulation.  No  London  bank  can  issue 
notes,  nor  can  any  bank  which  has  been  chartered  since 
May  6, 1844,  while  the  issues  of  the  English  banks  then 
existing  are  limited  to  their  ordinary  outstanding  circu- 

silver,  but  is  not  obliged  to  buy  silver  as  it  is  obliged  to  buy  gold. 
Accordingly,  the  Bank  in  the  crisis  of  1847  refused  to  buy  silver  or 
make  advances  upon  it.  Lord  Overstone  justifies  this  action :  "  In  a 
Country  where  the  standard  is  gold,  silver  is  a  commodity,  and  must 
be  treated  as  any  other  commodity.  It  is  not  expedient  that  the 
Bank  should  be  compelled  to  make  advances  on  commodities." — 
[Tracts,  p.  299.] 

1  Tracts,  pp.  6-7,  27,  60,  77-8. 


450  MONET. 

* 

lation  before  that  date.  The  Irish  and  Scotch  banks,1 
however,  can  issue  bank-notes  above  the  amount  of 
their  circulation  in  1844,  provided  that  for  every  note 
so  issued  they  possess  a  corresponding  amount  of  coin. 

Here  we  have  the  third  great  feature  of  the  Act  of 
1844,  viz.,  the  restriction,  so  far  as  was  deemed  consist- 
ent with  vested  interests,  of  the  country  bank  circula- 
tion. It  was  in  this  part  of  the  paper  money  of  the 
kingdom,  prior  to  1844,  that  the  advocates  of  the  Cur- 
rency Principle  found  the  main  source  of  the  evil  of  ex- 
cessive inflation  or  contraction. 

"We  impose  upon  the  Bank  of  England,"  wrote  Lord 
Overstone  in  1837,  "the  duty  of  regulating  the  value  of 
the  currency  and  providing  for  the  payment  of  the 
whole  of  it  in  specie,  without  giving  to  that  body  the  ex- 
clusive power  of  issuing  the  paper  money,  or  investing  it 
with  any  direct  control  over  the  conduct  of  rival  issu- 
ers."2 

"This  is  the  vital  objection  to  our  country  issues,"  he 
wrote  in  1840,  "  that  they  expand  and  contract  with 
prices,  contrary  to  what  ought  to  be  the  result  upon 
sound  principles,  and  would  be  the  result  with  a  metal- 
lic circulation."  Col.  Torrens  had  said:  "When  the 
Bank  of  England  decrees  contraction,  the  country  banks 
of  issue,  instead  of  resisting,  obey  and  suffer."  "It 
would,"  rejoined  Lord  Overstone,  "have  been  more 
consonant,  as  we  conceive,  to  the  real  course  of  events, 
had  he  said  the  country  banks  of  issue  first  resist,  then 
suffer,  and  in  the  end  submit." 3 

1  In  Ireland  and  Scotland  bank-notes  are  not  a  legal  tender.  In 
England  Bank  of  England  notes  are  a  legal  tender  everywhere 
except  at  the  Bank  or  its  branches. 

8  Tracts,  p.  12,  cf.  pp.  14-5,  91-6,  179,  221,  256,  350-1. 

•  Ibid.,  p.  101. 


THE  BANK  A  CT  OF  1844.  451 

"It  is  of  the  nature  of  the  circulation  of  the  country 
banks,"  wrote  Mr.  Tooke  in  1826,  "  to  be  extended  un- 
der circumstances  favorable  to  speculation,  upon  the 
prospect  of  an  advance  of  prices,  or  upon  the  opening 
of  new  fields  of  enterprise,  and  to  be  diminished  under 
the  opposite  circumstances." 

"  In  periods  of  excess,"  wrote  Sir  James  Graham  at 
the  same  time,  "the  issues  of  the  country  bankers  have 
greatly  exceeded  the  rate  of  increase  by  the  Bank  of 
England ;  and  in  periods  of  contraction  the  diminution 
has  been  more  violent  and  unlimited." 
*  Within  the  limits  imposed  upon  the  issues  of  the 
English  country  banks  and  the  Irish  and  Scotch  banks, 
the  secured  circulation,  exclusive  of  that  of  the  Bank  of 
England,  authorized  by  the  acts  of  1844  and  1845,  was 
as  follows: 

England  and  Wales,  £8,689,937 

Scotland,  -      3,063,000 

Ireland, 6,354,494 


Total,        -        -        -        -       ,£18,107,431 
The  amount  of  bank-notes  so  authorized  at  the  date, 
June  30,  1866,  was  £16,360,140.     The  amount  actually 
issued  was  £14,687,546.1 

1  Hankey  on  Banking,  p.  12.  The  return  of  the  circulation  on 
October  27,  1875,  shows  that  the  English  banks,  which  cannot  in 
any  case  exceed  their  fixed  issues  (as  previous  to  1844),  were  below 
that  amount  £1,365,910.  The  Irish  and  Scotch  banks,  which  can 
exceed  their  issues  of  1844  so  far  as  they  hold  specie  for  all  addi- 
tional notes,  had  taken  advantage  of  that  provision,  the  Irish  to  the 
extent  of  £1,884,369,  the  Scotch,  £3,489,146.  The  gold  and  silver 
held  by  the  Irish  banks  at  this  date  was  £3,393,001 ;  that  by  the 
Scotch,  £4,401,849. 


452  MONEY. 

THE  OPERATIONS  OF  THE  ACT  OF  1844. 

The  Act  of  1844  has  been  the  subject  of  passionate 
controversy.  Mr.  Bagehot  makes  the  animosity  whicln 
subsists  on  this  subject  the  excuse  for  omitting  all  dis- 
cussion of  it  in  his  interesting  work,  "Lombard  Street. ' 

"  If  you  say  anything  about  the  Act  of  1844,  it  is  lit- 
tle matter  what  else  you  say,  for  few  will  attend  to  it. 
Most  critics  will  seize  on  the  passage  as  to  the  Act, 
either  to  attack  it  or  defend  it,  as  if  it  were  the  main 
point.  There  has  been  so  much  fierce  controversy  as  to 
this  Act  of  Parliament,  and  there  is  still  so  much  ani- 
mosity, that  a  single  sentence  respecting  it  is  far  more 
interesting  to  very  many  than  a  whole  book  on  any 
other  part  of  the  subject.  Two  hosts  of  eager  dispu- 
tants on  this  subject  ask  of  every  new  writer  the  one 
question,  are  you  with  us,  or  against  us?  and  they  care 
for  little  else."1 

Prof.  Price  asserts  that  the  Act  of  1844  did  not  make 
the  Bank  of  England  note  any  safer.  This  may  be  con- 
ceded by  the  advocates  of  the  Act,  for  it  is  of  the  es- 
sence of  the  Currency  Principle  that  something  more 
than  good  banking  is  needed  to  give  the  people  good 
money;  that  issues  may  take  place  under  perfectly 
sound  banking  which  will  involve  production  and  trade 
in  great  perturbations,  and  even  bring  them  down  in 
disaster  and  ruin,  while  yet  the  individual  note-holder 
has  no  reason  to  doubt  the  ultimate  solvency,  or  even 
the  immediate  solvency,  of  the  bank,  which  reaps  a 
profit  from  its  inflated  issues  in  the  period  of  prosperi- 
ty, and  in  time  of  stringency  and  pressure  may,  by  the 
exercise  of  firmness  and  good  judgment,  secure  excep- 
tionally high  rates  of  interest  without  danger. 

1  Lombard  Street,  p.  2. 


THE  BANK  A  CT  OF  1841  453 

In  other  words,  the  Currency  Principle  assumes  that 
the  interests  of  the  general  community,  and  of  the  com- 
mercial and  manufacturing  classes  in  particular,  are  not 
necessarily  identical  at  all  times  with  the  interests  of  the 
banks,  in  such  a  sense  that  the  observance  by  the  latter 
of  their  own  interests  in  the  issue  of  paper,  will  sub- 
serve the  interests  of  the  former,  without  restriction  or 
regulation  devised  for  the  public  good. 

But  while  Prof.  Price  asserts  that  the  Act  of  1844  has 
added  nothing  to  the  safety  of  the  Bank  of  England 
note,  he  freely  concedes  the  merit  of  that  Act  in  the  reg- 
ulation of  the  country  circulation. 

"The  matter,"  he  says,  "is  quite  otherwise  with  the 
notes  of  country  banks  throughout  England.  These 
banks  had  failed  by  hundreds.  They  were  bad  bankers 
and  often  lost  their  means ;  and  then  those  who  held  their 
notes  were  involved  in  ruinous  losses.  .  .  .  Bank- 
ers who  conducted  their  business  ill  were  manifestly 
unfit  persons  to  be  intrusted  with  the  function  of  sup- 
plying public  money.  They  were  bad  makers,  bad  man- 
ufacturers, unfit  to  be  trusted  with  the  work ;  as  bad  as 
a  mint  whose  sovereigns  could  never  be  relied  upon  for 
quality.  The  remedy  came  in  the  Act  of  1844,  and 
whatever  may  be  said  of  the  Act  then  passed,  it  is  cer- 
tain that,  so  long  as  it  remains  in  force,  the  special  dis- 
asters of  1825  can  never  recur." l 

Here  comes  out  strongly  the  antagonism  of  the  Bank- 
ing to  the  Currency  Principle.  The  country  issues 
were  formerly  mischievous,  because  issued  by  "bad 
makers,  bad  manufacturers."  The  rules  of  good  bank- 
ing were  not  observed.  The  currency  manufactured 
was  not,  in  fact,  convertible.  This  admission  saves  the 

1  Principles  of  Currency,  pp.  136-7. 
38* 


454  MONEY. 

principle  that  good  banking  will  give  good  money,  and 
that,  if  notes  are  truly  convertible,  they  cannot  be 
maintained,  or  even  issued,  in  excess. 

On  the  other  hand,  the  authors  and  advocates  of  the 
Act  of  1844  have  felt  bound  to  prove  that  the  operation 
of  the  Act,  aside  from  its  effects  on  the  country  circula- 
tion, has  been  beneficial  to  the  production  and  trade  of 
England ;  and  this  is  not  only  in  the  very  nature  of  the 
case  a  hard  thing  to  do,  but  there  are  some  very  ugly 
facts  in  the  way. 

These  facts  are,  first,  that  the  fluctuations  in  the  rate 
of  discount  are  much  more  frequent  in  England  since 
than  before  the  Act  of  1844,  and  are  more  frequent  in 
London  since  that  Act  than  in  other  monetary  centres 
of  Europe ; l  secondly,  that  the  operation  of  the  Act  has 
been  thrice  suspended  by  the  intervention  of  govern- 
ment, as  a  necessity  of  the  financial  situation. 

Let  us  take  these  objections  in  inverse  order.  The 
fact  of  the  necessity  of  the  occasional  suspension  of  the 
Act,  the  writers  of  the  Currency  school  refuse  to  accept 
as  affording  any  disparagement  of  its  usefulness;  and 
they  certainly  have  a  controversial  advantage  in  that 
they  can  show  that  this  opinion  is  not  an  afterthought ; 
but  that  the  question  of  the  possible  suspension  of  the 
Act  was  entertained  before  its  passage,  and  incidentally 
to  the  discussion  of  its  principles.  Thus,  Lord  Over- 

1  Mr.  Kobert  Baxter  adduces  the  following  facts:  For  the  first 
eleven  years  of  the  operation  of  the  Act  the  changes  of  the  rate  of 
interest  were  28;  in  the  second  series  of  eleven  years,  106.  The 
average  amount  of  change  in  the  rate  for  the  first  period  was  under 
1  per  cent.;  the  average  of  the  second  period  over  3  per  cent. 
While  in  the  twenty-two  years  between  1844  and  1866  there  were 
134  changes  in  the  rate  of  interest  at  the  Bank  of  England,  there 
were  only  52  at  the  Bank  of  France.— [The  Panic  of  1866,  pp.  12-5.J 


SUSPENSIONS  OF  THE  ACT  OF  1844.  455 

stone,  in  1840,  drew  up  and  printed  his  "  Thoughts  on 
the  Separation  of  the  Departments  of  the  Bank  of  En- 
gland," which  was  reprinted  during  the  pendency  of  Sir 
Kobert  Peel's  bill  in  1844.  In  this  pamphlet  he  dealt 
with  the  question,  whether  a  drain  might  not,  in  excep- 
tional circumstances,  be  carried  so  far  as  to  render  the 
maintenance  of  a  fixed  rule  mischievous  and  even  highly 
dangerous  to  the  community,  reaching  this  conclusion : 
"  If  the  danger  is  deemed  to  be  of  such  a  nature  as  to 
require  an  efficient  provision  against  it,  this  is  to  be 
found,  not  in  a  general  abandonment  of  the  attempt  to 
place  the  management  of  the  circulation  under  some 
fixed  principle,  but  in  that  power,  which  all  govern- 
ments must  necessarily  possess,  of  exercising  special 
interference  in  cases  of  unforeseen  emergency  and 
great  state  necessity."— [Tracts,  p.  282;  cf.  pp.  301-2.] 
Having  thus  admitted  the  possible  occasion  for  a  sus- 
pension of  the  Act  prior  to  its  passage,  the  advocates  of 
the  Currency  Principle  can  argue,  without  any  discom- 
fiture in  the  result,  that  the  three  suspensions  of  1847, 
1857,  and  1866  were  only  the  proper  administrative  re- 
laxations of  a  rule  of  conduct  which  they  declare*  to  be, 
in  general,  sound  and  beneficial. 

What  is  meant  by  a  suspension  of  the  Act  of  1844? 
It  is  popularly  supposed  in  this  country  to  imply  the 
suspension  of  specie  payments ;  and  it  is  not  unusual 
to  meet  with  statements  to  the  effect  that  the  Bank  of 
England  has  failed  three  times  since  1844.  The  sus- 
pension of  the  Act  of  1844  does  not  touch  the  obligation 
of  the  Bank  to  pay  bullion  for  its  notes  on  demand. 
This  it  has  never  failed  to  do  since  the  resumption  in 
1821.  It  is  not  from  any  stress  upon  the  issue  depart- 
ment, but  from  the  exigencies  of  the  banking  depart- 
ment, that  the  necessity  for  government  interference  has 
in  every  case  arisen. 


456  MONEY. 

The  suspension  of  the  Act  of  1844  amounts  simply  to 
this:  whereas  the  law  says  that  the  Bank  shall  issue 
notes  above  £15,000,000  only  upon  the  actual  deposit 
of  corresponding  quantities  of  bullion,  the  government 
has  in  the  three  specific  instances  referred  to  authorized 
the  management  to  act,  temporarily,  without  reference  to 
this  restriction,  though  still  subject  to  full  responsibil- 
ity for  the  redemption  of  notes  in  specie  on  demand,  i 
Out  of  the  three  instances  the  Bank  has  actually  taken 
advantage  of  the  permission  afforded  but  once,  viz.,  in 
1857,  and  then  only  to  the  extent  of  £#00,000. 

To  the  charge  that  fluctuations  in  the  rate  of  discount 
have  become  more  frequent  in  England  since  1844  than 
they  were  before,  and  are  more  frequent  now  in  Lon- 
don than  in  other  monetary  centres,  the  advocates  of 
the  Act  of  1844  reply  that  the  increase  since  1844  is  due 
to  the  growing  extent  and  complexity  of  commercial  re- 
lations and  the  greater  facility  of  communication ;  while 
the  fact  that  London  suffers  more  frequent  changes 
than  any  other  monetary  centre  is  due  to  the  high  and 
responsible  position  which  she  occupies  in  international 
transactions,  the  effects  of  all  disturbances  being  felt 
there  as  they  are  felt  nowhere  else,  the  disadvantage 
arising  herefrom  constituting  the  necessary  price  of  the 
great  advantage  which  London  enjoys  as,  in  the  lan- 
guage of  Burke,  "the  Exchange  of  the  World." 


We  have  now  reached  the  point  where  we  may  in- 
quire rather  more  precisely  than  we  have  yet  been  able 
to  do  into  the  rationale  of  the  scheme  for  governing  the 
monetary  circulation  of  England.  Prior  to  1819  the 
Bank  directors  professed1  to  be  governed,  not  by  the 

1  See  Bagehot,  Lombard  Street,  pp.  175-6. 


CHANGES  IN  RATE  OF  DISCOUNT.  457 

state  of  the  exchanges  or  by  the  price  of  gold,  but  by  the 
demand  for  discount,  having  reference  to  the  amount 
already  advanced  to  the  individual,  to  the  solidity  of  the 
paper,  and  to  the  appearance  of  its  being  wanted  for 
strictly  commercial  purposes.  These  were  good  and 
sufficierft  banking  rules.  We  have  already  seen  that  the 
Court,  in  1819,  passed  a  resolution  declaring  that  they 
saw  no  grounds  for  the  sentiment  that  the  Bank  had 
only  to  reduce  its  issues  to  obtain  a  favorable  turn  in 
the  exchanges  and  a  consequent  influx  of  the  precious 
metals ;  and  that  the  Act  of  that  year  was  passed  in  op- 
position to  the  views  of  the  Bank.  By  1827,  however, 
the  directors  had  been  so  far  moved  from  their  position 
as  to  rescind  the  resolution  of  1819.  In  1832  occurred 
ths  Eecharter,  when  the  Bank  directors  showed  a  still 
further  change  of  views  on  the  subject  of  the  regulation 
of  issues ;  and  from  that  time  to  1844  the  following  was 
the  accepted  principle  of  management :  The  issues 
were  to  be  regulated  in  amount  with  constant  reference 
to  the  state  of  the  foreign  exchanges ;  and  the  increase 
or  diminution  of  gold  in  the  hands  of  the  Bank  was  to 
be  taken  as  the  only  certain  and  safe  test  of  the  favora- 
ble or  unfavorable  state  of  the  exchanges.  Consequent- 
ly the  amount  of  paper  issues  was  to  be  made  to  vary 
with  direct  reference  to  fluctuations  in  the  amount  of 
bullion  in  the  Bank.  This  having  been  from  1832  the 
theory  of  the  management  of  the  circulation,  the  Act  of 
1844  was  regarded  by  the  Overstone  economists  as  en- 
abling and  requiring  the  theory  to  be  simply  and  surely 
realized  in  practice. 
39 


458  MONEY. 


FOREIGN  EXCHANGES.1 


"The  phrase  'Foreign  Exchanges,'"  says  Mr.  G6- 
schen,  "is  in  itself  vague  and  ambiguous,  being  more 
frequently  used  to  express  the  rates  at  which  the  ex- 
changes in  question  are  effected  than  the  exchanges 
themselves — the  prices  rather  than  the  transactions. 
That  which  forms  the  subject  of  exchange  is  a  debt  ow- 
ing by  a  foreigner  and  payable  in  his  own  country, 
which  is  transferred  by  the  creditor  or  claimant,  for  a 
certain  sum  of  money,  to  a  third  person,  who  desires  to 
receive  money  in  that  country,  probably  in  order  to  as- 
sign it  over  to  a  fourth  person  in  the  same  place,  to 
whom  he  in  his  turn  may  be  indebted." — [Pp.  1-2.] 

The  dry  goods  importers  of  New  York,  let  us  suppose, 
sell  to  Chicago  in  a  given  time  English  goods  to  the 
value  of  $5,000,000.  The  grain  exporters  of  New  York 
send  abroad  $5,000,000  worth  of  grain  received  from 
Chicago.  Shall  the  New  York  grain  exporters  send 
$5,000,000  to  Chicago,  and  the  dry  goods  dealers  of  Chi- 
cago send  $5,000,000 — perhaps  the  same  notes  in  un- 
broken packages — to  New  York  ?  Clearly  this  would 
involve  waste  and  unnecessary  risk.  Instead  of  this, 
the  dry  goods  dealers  of  Chicago,  having  sold  their 
stock  into  the  country  at  a  profit,  pay  upon  the  order  of 
the  New  York  importers  of  dry  goods  $5,000,000  to  the 
grain  shippers  of  Chicago,  who,  out  of  this  sum,  pay  the 

1  Four  excellent  works  on  this  subject  are  available:  G-oschen's 
"  Theory  of  the  Foreign  Exchanges  "  ;  Nicholson's  "  Science  of  Ex- 
changes " ;  Tate's  "  Cambist,  or  Manual  of  Exchanges " ;  Seyd's 
"  Bullion  and  Foreign  Exchanges."  Wm.  Blake's  work,  "  Observa- 
tions on  Exchange,"  published  early  in  the  century  was  the  best 
work  on  the  subject  in  its  day,  but  all  it  contains  will  be  found  in 
later  publications. 


THEORY  OF  THE  EXCHANGES.  459 

grain  growers  and  realize  their  own  profit.  The  New 
York  grain  exporters,  selling  the  grain  in  London  at  a 
profit,  pay,  on  the  order  of  their  Chicago  creditors,  $5,- 
000,000  to  the  New  York  importers  of  dry  goods.  But 
since  these  latter  have  to  pay  the  West  of  England  man- 
ufacturers, not  in  New  York  but  in  London,  they  ar- 
range with  the  grain  exporters  not  to  bring  home  the 
proceeds  of  their  sales  in  Mark  Lane,  but  to  transfer  to 
them  the  right  to  draw  for  the  amount  upon  the  pur- 
chasers. This  is  done,  and  the  New  York  dry  goods 
importers,  now  become  the  creditors  of  the  English  grain 
importers,  direct  these  by  letter  to  pay  the  claims  of  the 
English  manufacturers  of  kerseys  and  broadcloths. 
Here  we  have  a  simple  case  of  direct  exchange,  domestic 
and  foreign.  It  is  seen  that  no  money  passes  between 
Chicago  and  New  York,  or  between  New  York  and 
London. 

As  an  illustration  of  indirect  foreign  exchange,  we 
might  take  the  relations  of  England,  China,  and  the 
United  States. 

The  United  States  sell  little  to  China  and  buy  much 
from  her,  and  are  therefore  debtors  largely  to  the  Chi- 
nese ;  England  buys  largely  from  China,  also,  but  sells 
to  her  even  more  largely,  and  is  therefore  the  creditor 
of  the  Chinese.  China,  through  the  operations  of  ex- 
change, says  to  the  United  States  :  Pay  to  England,  up- 
on this  my  warrant,  what  you  owe  to  me.  It  is  done, 
and  the  actual  transfer  of  money,  first  from  New  York 
to  Canton,  thence  to  be  shipped  to  Liverpool,  is  avoided. 

"This  circuitous  method,"  says  Mr.  McLeod,  "is 
called  the  Arbitration  of  Exchange.  .  .  .  When  only 
three  places  are  used  in  the  operation  it  is  called  simple 
arbitration;  when  more  than  three  are  employed  it  is 
called  compound  arbitration." 


460  MONET. 

It  thus  appears  that  what  is  termed  Exchange  is 
merely  the  familiar  principle  of  the  cancellation  of  mu- 
tual indebtedness,  applied  to  trading  communities  and 
nations.  As,  hoAvever,  it  ordinarily  involves  the  calcu- 
lation of  indebtedness  in  foreign  moneys,  the  technical 
term,  exchange,  is  retained,  even  when  no  actual  chang- 
ing of  domestic  for  foreign  coins  is  required,  and,  in- 
deed, where  the  whole  transaction  is  performed  without 
any  transfer  of  money. 

I  said  "without  any  transfer  of  money."  This  may  be 
done  when  the  indebtedness  between  erne  country  and 
another,  or  between  one  country  and  all  others  (when 
the  arbitration  of  exchange  is  resorted  to),  is  equal  in 
amount  and  coincident  in  time.  But  it  will  easily  ap- 
pear that  the  chances  are  very  small,  under  modern 
commercial  relations,  that  such  an  equivalence  of  debts 
should  occur.  While  many  elements1  have  to  be  taken 
into  account  in  ascertaining  the  balance  of  international 
indebtedness  arising  from  all  the  transactions  of  a  year, 
it  is  clear  that  the  failure  of  coincidence  in  the  matur- 

1  The  cause  commonly  looked  to,  to  explain  a  divergence  between 
the  amounts  of  debts  owing  by  a  country  and  the  amounts  falling  due 
to  that  country,  is  the  excess  of  imports  over  exports,  or  vice  versa, 
as  shown  by  the  customs  returns  of  trade.  But  this  mode  of  ascer- 
taining the  balances  of  international  obligations  is  insufficient.  The 
other  elements  indicated  by  Mr.  G-oschen  are  (1)  Freight  and  Insur- 
ance, since  the  goods  may  be  carried  both  ways,  and  both  voyages 
insured  by  the  shippers  and  insurers  of  one  country.  It  is  in  this 
way  the  balance  of  payments  is  made  so  often  to  turn  in  favor  of 
England.  (2)  Interest  on  bonds  held  abroad,  and  commissions  and 
profits  earned  by  resident  foreigners  to  be  remitted  abroad,  also  sums 
earned  in  wages  to  be  sent  back  to  relations.  By  all  these  ways 
American  indebtedness  is  largely  increased,  (3)  The  expenses  of 
foreign  travel.  (4)  The  disbursements  of  fleets  on  foreign  stations 
and  armies  in  foreign  countries. 


•         RATES  OF  EXCHANGE.  461 

ing  of  obligations  may  introduce  further  divergence  as 
to  the  amounts  owing  and  falling  due  at  any  given  date 
within  the  year.  Two  nations  might  conceivably  come 
under  equal  obligations  to  each  other  during  the  course 
of  the  year,  and  yet  one  have  a  great  balance  of  pay- 
ments to  make  in  the  spring,  and  the  other  in  the  au- 
tumn. 

When  the  payments  between  any  two  places  or  coun- 
tries, at  a  given  time,  exactly  balance  each  other,  ex- 
change will  be  at  par.  In  the  instances  given  above, 
London  owing  New  York  as  much  as  New  York  owes 
London,  every  New  York  merchant  will  be  able  to 
purchase  a  debt  owing  in  London  at  its  face-value,  and 
vice  versa.  Exchange  between  two  places  is  at  par  when, 
by  paying  gold  in  one  place,  you  may  have  an  equal 
quantity  of  fine  gold  paid  to  your  agent,  or  on  your  or- 
der, in  the  other  place;  or  by  paying  silver1  in  the  one 
place,  you  may  have  the  command  of  an  equal  amount 
of  fine  silver  in  the  other. 

On  the  other  hand,  if,  at  a  given  date,  there  is  a 
larger  sum  to  be  paid  in  the  United  States  by  English 
merchants  than  in  England  by  American  merchants, 
every  American  merchant  who  has  the  right  to  receive 
money  from  England  can  sell  his  right  to  some  English 
merchant  who  is  bound  to  pay  money  in  the  United 
States  for  more  than  the  face-value  of  his  claim,  be- 
cause there  will  not  be  enough  of  English  claims  on 
America  to  satisfy  all  American  claims  on  England. 

1  There  can  be  no  true  par  of  exchange  between  countries  having 
a  different  metal  as  the  legal  standard,  only  "  a  usual  rate." — [McLeod, 
Econ.  Phil.,  ii,  290.] 

"Gold,"  says  Mr.  Goschen,  "is  simply  merchandise  in  such  coun- 
tries as  have  a  silver  currency,  and  silver  is  merchandise  in  such 
'  countries  as  have  a  gold  standard ;  and  according  to  the  price  of  the 
merchandise  at  a  given  moment,  so  will  the  exchange  fluctuate." 


462  MONEY. 

On  the  other  hand,  every  English  merchant  who  has 
the  right  to  receive  money  from  the  United  States  will 
sell  his  right  for  less  than  its  face-value. 

To  what  extent  will  the  premium  on  "bills"  rise? 
To  that  only  which  will  induce  an  export  of  bullion. 
When,  in  the  instance  given,  those  American  merchants 
who  hold  claims  upon  England  demand  more  than  the 
cost  of  purchasing  gold  in  England,  shipping  to  the 
United  States,  insuring  it  on  the  voyage  and  paying  cer- 
tain incidental  charges,  English  merchants  having  to 
pay  debts  in  the  United  States  will  send  bullion.1 

It  has  been  said  that  exchange  between  two  places  is 
at  par  when  a  man  in  one  place  by  paying  in  gold  can 
have  an  equal  amount  of  fine  gold  paid  to  his  agent  or 
order  in  the  other  place.  It  will  be  observed  that  ex- 
changes are  effected  with  reference  to  the  fine  gold  con- 
tents of  the  coins  of  the  several  countries.2  If,  therefore, 
the  coinage  of  any  country  be  debased,  the  effect  on  the 
exchanges  will  be  immediately  felt.  It  was  in  the  sense 
of  this  evil  that  the  first  banks  of  Northern  Europe  had 
their  origin.3 

1  "  When  the  French  exchange  is  at  25  francs  10  centimes  to  the 
pound  sterling,  it  pays  to  send  gold  from  England  to  France.     When 
the  exchange  is  25 :  35,  it  pays  to  send  gold  from  France  to  England. 
The  mint  par  being  taken  at  25 : 22£,  we  have,  thus,  a  margin  of 
12|-  centimes,  or  |-  per  cent,  either  way,  and  25  centimes  or  1  per 
cent,  between  the  two  extreme  points." — [Seyd,  Bullion  and  Foreign 
Exchanges,  p.  394.] 

2  "  When  British  goods,  sold  abroad,  are  paid  for  in  money,  it  is  not 
the  denomination  of  the  foreign  coin  which  the  merchant  regards ; 
it  is  the  quantity  of  gold  and  silver  it  contains." — [James  Mill,  Com- 
merce Defended.] 

3  "  Chose  singuli^re !     L'etablissement  destine  a  consolider  la  rig- 
oreuse  precision  de  la  monnaie  metallique,  a  servi  de  point  de  depart 
a  1'invention  qui  la  menace !  " — [M.  Wolowski,  Journal  des  Econ- 
omistes,  Oct.,  1868.] 


EFFECT  OF  BAD  MONEY  ON  EXCHANGE.       463 

"Before  1609,"  says  Adam  Smith,  "the  great  quantity 
of  clipped  and  worn  foreign  coin,  which  the  extensive 
trade  of  Amsterdam  brought  from  all  parts  of  Europe, 
reduced  the  value  of  its  currency  about  nine  per  cent, 
below  that  of  good  money  fresh  from  the  mint.  Such 
money  no  sooner  appeared  than  it  was  melted  down,  or 
carried  away,  as  it  always  is  in  such  circumstances. 
The  merchants,  with  plenty  of  currency,  could  not  al- 
ways find  a  sufficient  quantity  of  good  money  to  pay 
their  bills  of  exchange ;  and  the  value  of  those  bills,  in 
spite  of  several  regulations  which  were  made  to  pre- 
vent it,  became  in  a  great  measure  uncertain. 

"  In  order  to  remedy  these  inconveniences,  a  bank  was 
established  in  1609  under  the  guarantee  of  the  city. 
This  bank  received  both  foreign  coin  and  the  light  and 
worn  coin  of  the  country  at  its  real  intrinsic  value  in 
the  good  standard  money  of  the  country,  deducting  only 
so  much  as  was  necessary  for  defraying  the  expense  of 
coinage  and  the  other  necessary  expense  of  manage- 
ment. For  the  value  which  remained  after  this  small 
deduction  was  made,  it  gave  a  credit  in  its  books.  This 
credit  was  called  bank-money,  which,  as  it  represented 
money  exactly  according  to  the  standard  of  the  mint, 
was  always  of  the  same  real  value  and  intrinsically 
worth  more  than  current  money.  It  was  at  the  same 
time  enacted  that  all  bills  drawn  upon  or  negotiated  at 
Amsterdam  of  the  value  of  six  hundred  guilders  and  up- 
wards should  be  paid  in  bank-money,  which  at  once 
took  away  all  uncertainty  in  the  value  of  those  bills." 

Where  the  money  of  a  country  consists  mainly  of  de- 
based coin,  we  have  seen  that  the  effect  on  the  exchange 
is  unfavorable  to  trade.  Much  more  injurious  is  paper 
money  which  is  not  convertible  upon  demand  into  coin. 
We  have  already  cited  Mr.  Bagehot's  remark  that  "any 


464  MONEY. 

depreciation,  however  small,  even  the  liability  to  depre- 
ciation without  its  reality,  is  enough  to  disorder  ex- 
change transactions;"  and  we  saw  that  to  this  cause 
Mr.  Bagehot  attributes  the  fact  that  Paris  has,  since 
1871,  ceased  to  be  one  of  the  two  exchange  centres  of 
the  world,  and  that  practically  the  whole  of  this  great 
agency,  with  its  important  franchises  so  directly  affect- 
ing the  control  of  commerce,  has  come  into  the  hands  of 
London  bankers.  If  this  be  true  of  a  paper  money 
slightly  depreciated,  the  effects  of  greatly  inflated  and 
rapidly  fluctuating  paper  must  be  mischievous  in  the 
highest  degree.  No  advantage  that  could  be  alleged  in 
favor  of  Inconvertible  Paper  Money,  even  allowing  for 
the  saving  of  the  entire  first  cost  of  the  circulating  me- 
dium, would  compensate  any  progressive  country  for 
the  disturbance  of  commercial  relations  and  the  uncer- 
tainty introduced  into  all  international  monetary  trans- 
actions by  this  cause. 

With  this  brief  glance  at  the  general  theory  of  the 
subject,  we  are  prepared  to  take  up  again  the  English 
scheme  of  regulating  the  bank  issues  with  reference  to 
the  exchanges. 

NOTE-ISSUES  AND  THE  EXCHANGES. 

"When  the  exchanges  are  in  an  unfavorable  state," 
said  Lord  Overstone,  "I  apprehend  that  is  evidence 
that  the  relation  of  the  money  of  the  country  to  the 
commodities  of  the  country  is  such  that  it  is  more  prof- 
itable to  export  money  than  to  export  commodities; 
and  the  action  on  the  part  of  the  managers  of  the  circu- 
lation ought  to  be  directed  to  restoring  such  a  relative 
state  between  money  and  commodities  as  shall  render  it 
the  interest  of  the  community  at  large  to  export  such  a 


BANK  REGULATION  OF  THE  EXCHANGES.      465 

quantity  of  commodities  as  shall  prevent  a  further  ex- 
port of  money." — [Evidence  on  Banks  of  Issue,  1840.] 

This  doctrine,  it  will  be  seen,  is  based  directly  on 
Kicardo's  position  that  a  country  will  not  export  bullion 
instead  of  goods  unless  there  is  an  inflated  circulation. 

Again  Lord  Overstone  says:  "The  only  safe  course 
is  to  consider  a  continuous  drain  of  gold  from  the  Bank 
as  conclusive  evidence  ...  of  the  necessity  of  ef- 
fecting1 a  corresponding  reduction  of  circulation." 

But  if  the  policy  of  regulating  the  note-issue  by  the 
state  of  the  exchanges  was  the  avowed  policy  of  the 
Bank  in  1832,  wherein  lay  the  importance  of  the  Act  of 
1844?  It  was  that,  until  the  function  of  deposit  and 
discount  was  separated  from  that  of  issue,  each  was  cer- 
tain to  be  "endangered  by  influences  or  affections  con- 
nected with  the  other." — [Ibid.,  p.  145.]  The  banker 
inevitably  sympathizes  with  expansive  speculations; 
therefore  he  should  not  issue  currency.  The  managers 
of  the  Bank,  in  its  compound  character,  were  certain, 
not  more  in  their  published  accounts  than  in  their 
reasonings  and  calculations,  to  "blend  together  de- 
posits and  circulation  on  the  one  side ;  gold  and  secu- 
rities on  the  other"  [p.  33],  and  thus  deceive  themselves 
and  impose  upon  the  public  with  an  appearance  of 

1  AT  ONCE  :  cf.  pp.  23,  75,  242,  247,  253,  265.  "  A  system  of  early, 
steady  and  continuous  contraction,  in  the  place  of  that  which  has 
been  late  in  its  commencement,  sudden  and  violent  in  its  operation, 
and  irregularly  carried  out." — [P.  243.] 

"  Thus,  probably,  calm,  deliberate  and  judicious  preparation  from 
1833  to  1836,  whilst  the  bullion  decreased  from  £11,000,000  to 
£6,000,000,  would  have  obviated  the  confusion  and  despair  which 
ensued  in  1837,  when  the  alarm  occasioned  by  a  very  low  state  of 
the  bullion  acted  abruptly  upon  an  unprepared  community." — [P. 
260.] 

39* 


466  MONEY. 

strength  which  the  circulation  proper  did  not  possess ; 
while  the  banking  reserve  would  remain  "  a  vague  and 
undefined  quantity,  the  power  of  issuing  any  amount  of 
notes  until  the  gold  was  exhausted"  [p.  328],  a  reduc- 
tion of  deposits  being  deemed  a  sufficient  set-off  against 
a  reduced  amount  of  bullion  [p.  34].  The  separation 
of  the  departments  made  it  impossible  for  the  Bank 
managers  to  mislead  the  public  or  misunderstand  their 
own  situation.  Moreover,  it  substituted  for  a  policy  of 
the  directors  a  rule  of  law,  which  could  only  be  changed 
by  the  act  of  a  responsible  government. 


How  far  has  the  Act  of  1844  accomplished  its  avowed 
object  of  regulating  the  note-issues  with  reference  to  the 
exchange  ? 

"It  was  expressly  declared,"  says  Mr.  McLeod,  "that 
it  was  the  purpose  of  the  Act  to  cause  a  withdrawal  of 
bank-notes  from  circulation,  i.  e.,/rom  the  public,  exactly 
equal  in  quantity  to  the  gold  withdrawn  from  the  Bank, 
in  strict  accordance  with  the  'Currency  Principle,' 
and  it  was  supposed  that,  if  the  directors  neglected  this 
duty,  the  '  mechanical '  action  of  the  Act  would  compel 
them  to  fulfill  it. 

"No  occasion  arose  for  testing  the  p'owers  of  the  Act 
till  April,  1847.  The  well-known  disasters  of  1846 
caused  a  steady  drain  of  bullion  from  the  Bank  to  com- 
mence in  September.  But  the  Bank  made  no  alteration 
in  its  rate  of  discount  till  January,  1847,  when  the  bull- 
ion was  below  £14,000,000,  when  it  raised  it  to  3^-. 
Having  lost  another  million  in  a  fortnight,  it  raised  dis- 
count to  4  per  cent.  But  it  made  no  alteration  till  it 
had  lost  £3,000,000  more,  and  then  it  raised  discount1  to 
5  per  cent. 


HAS  THE  ACT  OF  1844  FAILED? 


BANK-NOTES. 


467 


Held  by  Public. 

Held  in  Reserve 
by  the  Bank. 

Total  Amounts  of 
Bullion. 

Aug.  29,1846, 

£20,426,000 

£9,450,000 

£16,366,000 

Nov.  7, 

20,971,000 

7,265,000 

14,760,000 

Jan.  9,  1847, 

20,837,000 

6,715,000 

14,308,000 

Jan.  30, 

20,469,000 

5,704,000 

12,902,000 

March  6, 

19,279,000 

5,715,000 

11,596,000 

April  3, 

19,855,000 

3,700,000 

10,246,000 

April  10, 

20,243,000 

2,558,000 

9,867,000 

1  "These  figures  show  the  utter  futility  of  the  idea  that 
as  the  bullion  diminishes  the  Act  could  compel  a  re- 
duction of  notes  in  the  hands  of  the  public,  for  the 
notes  in  circulation  were  within  an  insignificant  trifle 
as  large  in  amount  when  the  bullion  was  only  £9,867,- 
000,  as  when  it  was  £16,366,000.  .  .  .  Whence  did 
this  failure  arise  ?  From  this  very  simple  circumstance. 
The  framers  of  the  Act  supposed  that  there  is  only  one 
way .  of  extracting  gold  from  the  Bank,  namely,  by 
means  of  its  notes,  and  that,  if  people  want  gold,  they 
must  bring  in  notes,  and  consequently  as  the  gold  comes 
out,  notes  must  go  in.  But  as  a  matter  of  simple  bank- 
ing business,  there  are  two  methods  of  extracting  gold 
from  the  bank — namely,  by  notes  and  checks.  Those 
persons  who  have  credit  in-  its  books  may  go  and  pre- 
sent checks,  and  thus  draw  out  every  ounce  of  gold  from 
the  banking  department,  without  a  single  bank-note  be- 
ing withdrawn  from  the  public. 

"In  fact,  instead  of  withdrawing  the  notes  from  the 
public,  as  was  intended  by  the  Act,  the  directors  threw 
the  whole  effect  of  the  drain  of  gold  on  their  own  re- 
serves, and  that  happened  in  this  way :  The  public  has 
two  methods  of  drawing  gold  from  the  banking  depart- 


468  MONET. 

ment,  namely,  by  notes  and  checks;  but  the  banking 
department  has  only  one  method  of  drawing  gold  from 
the  issue  department,  namely,  its  notes  in  reserve.  And 
when  the  Bank  felt  a  drain  on  its  banking  department l 
for  gold,  it  had  to  replenish  it  by  giving  up  an  exactly 
equal  amount  of  notes,  and  thus  the  whole  drain  fell 
on  its  own  reserves." 

But  can  we  conclude  with  Mr.  McLeod  that  the  Bank 
Act  is  a  failure  because  it  does  not  secure  the  reduction 
of  the  amount"  of  notes  in  circulation,  correspondently 
with  a  reduction  of  the  bullion  in  bank,  during  a  foreign 
drain?  Doubtless  the  authors  of  the  Act  expected  this, 
and  in  so  far  the  Act  may  be  said  to  have  failed.  Mr. 
Kicardo  and,  following  him,  Lord  Overstone  and  Mr. 
Norman,  had  Regarded  the  bullion  in  the  country  as 
practically  all  money  in  circulation,  affecting  prices. 
If,  then,  bullion  was  imported,2  it  resulted  that  prices 

1  "  The  remedy  for  this  state  of  things,  which  involves  such  serious 
disturbances  from  foreign  demands  for  gold  and  from  recurring  panics, 
is  to  disconnect  altogether  the  issue  department  of  the  State  from  the 
banking  operations  of  the  Bank  of  England,  so  that  the  State  shall 
issue  and  find  gold  to  redeem  the  paper  as  asked  for,  and  that  the 
Bank  may,  like  every  other  bank  in  the  kingdom,  confine  its  respon- 
sibility to  the  receiving  and  returning  its  customers'  capital,  without 
concerning  itself  with  the  currency  at  all." — [Robert  Baxter,  Statis- 
tical Journal,  June,  1876.] 

"  To  say  that  the  amount  of  notes  should  only  be  equal  to  what 
a  metallic  currency  would  have  been,  is  a  very  intelligible  prop- 
osition; and,  as  we  have  observed,  several  banks  have  been  con- 
structed on  that  principle.  But  no  bank  constructed  on  this  principle 
ever  did,  or  by  any  possibility  could,  do  a  banking  business  for  profit. 
These  banks  were  pure  banks  of  deposit ;  they  did  no  discount  busi- 
ness whatever."— [McLeod,  Econ.  Phil.,  ii,  474.] 

2  "  There  can  be  no  great  addition  to  the  bullion  of  a  country,  the 
currency  of  which  is  of  its  standard  value,  without  causing  an  in- 
crease in  the  quantity  of  money." — [Kicardo,  Reply  to  Bosanquet.J 


HAS  THE  ACT  OF  1844  FAILED?  469 

were  raised  and  the  importation  of  goods  was  in  that  de- 
gree encouraged.  If  bullion  was  exported,  prices  fell, 
and  the  exportation  of  goods  was  in  that  degree  encour- 
aged. 

The  position  of  the  opponents  of  the  Act  of  1844  was 
that  bullion  might  come  into  the  country  in  large 
amount  without  entering  into  the  circulation1  as  money, 
and  hence  affecting  prices ;  while,  in  another  situation, 
when  'there  should  be  a  drain  caused  (as  they  assert,  in 
opposition  to  Mr.  Ricardo  and  Lord  Overstone,  a  drain 
might  be  caused)  by  a  great  demand  for  foreign  expend- 
iture on  the  part  of  the  government,  or  by  a  large  ex- 
portation of  capital  for  investment,  or  by  a  failure  of 
crops  in  the  countries  from  which  the  raw  materials  of 
manufacture  are  imported,  or  by  the  loss  of  domestic 

1  "  Only  that  portion  of  coin,  or  money,  which  is  at  any  time  in 
the  hands  of  the  public  employed  in  performing  the  exchange  of 
commodities,  is  entitled  to  be  deemed  circulation." — [Wilson,  Capital, 
Currency  and  Banking,  p.  17.]  Again,  the  internal  circulation  may 
diminish  coincidently  with  a  large  import  of  bullion,  under  cer- 
tain circumstances. — [P.  21.]  "This  is  in  direct  opposition  to  the 
principle  of  Sir  Eobert  Peel's  Bank  Measure,  and  of  the  doctrine  of 
currency  so  ably  advocated  by  Mr.  Loyd  [Lord  Overstone],  Mr.  Nor- 
man and  Col.  Torrens,  who,  in  common  with  Sir  Eobert  Peel,  place 
implicit  confidence  in  the  effect  of  an  import  of  bullion  to  increase 
the  circulation,  to  raise  prices,  to  encourage  imports  and  to  correct 
the  exchanges." — [P.  22.] 

"  It  may  not  be  deemed  an  extravagant  supposition,"  says  Mr. 
Tooke,  "  that  there  might  occasionally  be,  under  a  perfectly  metallic 
circulation,  fluctuations,  within  moderately  short  periods,  to  the  ex- 
tent of  at  least  5  or  6  millions  sterling,  in  the  import  and  export  of 
bullion,  perfectly  extrinsic  of  the  amount  or  value  of  the  coin  circu- 
lating as  money  in  the  hands  of  the  public,  and  perfectly  without 
influence  on  the  general  prices  of  commodities,  as  equally  without 
general  prices  having  been  a  cause  of  such  fluctuations." — [Hist,  of 
Pj-ices,  1839-47,  p.  225.1 
40 


470  MONEY. 

harvests,  the  bullion  or  coin  for  export  will  be  taken  out 
of  the  reserves  of  bankers  and  out  of  hoards,1  and  not 
from  the  coin  actually  circulating.  Thus  Mr.  Wilson, 
in  1847,  claimed  that  iio  drain  in  England  had  ever  gone 
so  far  as  to  touch  the  money  in  the  hands  of  the  peo- 
ple.2 It  is  manifest  that  economical  opinion  has  turned 
strongly  towards  the  belief  that  bullion,  often  and  to  a 
considerable  extent,  leaves  a  country  or  returns  to  it 
without  reference  to  the  state  of  the  currency3  and  with- 
out affecting  prices. 

It  appears  to  me  that  the  merit  of  vthe  Bank  Act  of 
1844  is  in  its  influence  upon  the  circulation,  not  in 
crises,  but  in  times  of  prosperity,  when  the  seeds  of  evil 

1  Mr.  Fullarton,  in  his  "  Regulation  of  Currencies,"  assumes  the  ex- 
istence of  extensive  hoards  of  metallic  money  out  of  which,  under  the 
metallic  system,  drains  are  met.     This  is  probably  true  to  a  consider- 
able extent  of  France. 

2  "  When  a  drain  sets  in,  which  merely  means,  when  it  becomes 
profitable  to  export  the  commodity,  gold,  such  demand  will  act  on 
the  stocks  of  bullion,  and  on  the  coin  in  the  reserves  of  bankers,  but 
not  directly  on  the  coin  constituting  the  actual  circulation,  at  least 
until  all  those  reserves  were  actually  exhausted,  and  then  a  struggle 
would  commence  between  those  who  required  coin  for  circulation 
and  those  who  required  it  for  export.     To  this  point  a  drain  never 
yet  has  proceeded  with  a  convertible  currency,  nor  can  we  conceive 
any  circumstances  under  which  it  is  likely  to  do  so." — [Capital,  Cur- 
rency and  Banking,  p.  65.] 

"  Au  moyen  de  ces  reserves  [de  caisse],  des  payements  tres-consid- 
erables  peuvent  s'effectuer  de  peuple  a  peuple,  sans  que  la  circulation, 
ni,  par  consequent,  le  prix  de  1'argent,  en  soient  de  part  ni  d'autre  le 
moins  du  monde  affectes." — [Roscher,  Wolowski's  Transl.,  §125.] 

3  "  It  is  a  fact  now  beginning  to  be  recognized,  that  the  passage 
of  the  precious  metals  from  country  to  country  is  determined  much 
more  than  was  formerly  supposed  by  the  state  of  the  loan  market  in 
different  countries,  and  much  less  by  the  state  of  prices." — [J.  S.  Mill, 
Pol.  Econ.,  Ill,  viii,  4.] 


<HAS  THE  A  CT  OF  1844  FAILED  ?  471 

are  being  sown  in  a  soil  apt  to  receive  and  ferment 
them. 

"Fluctuations  to  a  greater  or  less  extent,"  wrote  Mr. 
Tooke  in  1826,  "are  inseparable  from  the  course  of 
commercial  affairs.  The  business  of  production  or  sup- 
ply proceeds  wholly  upon  anticipation ;  it  is  dependent 
on  the  seasons  and  on  an  endless  variety  of  casualties ; 
while  consumption  or  demand  may  be  influenced  by 
changes  of  habit,  fashion,  legislative  enactments,  and 
by  political  events.  The  contingencies  which  may  ex- 
cite a  spirit  of  speculation  and  enterprise  on  the  one 
hand,  and  disappoint  expectation  and  defeat  calculation 
on  the  other,  are  therefore  innumerable."— [State  of  tne 
Currency,  p.  65.] 

The  advocates  of  the  Currency  Principle,  who  main- 
tain that  there  is  a  liability  to  excessive  issues  of  paper ; 
that,  when  speculation  is  once  on  foot,  the  public  will 
receive  and  retain  a  larger  amount  of  bank-notes,  which 
will  enter  into  the  circulation,  raise  prices,  and  thus 
still  further  stimulate  the  speculative  impulse,  leading 
to  overtrading  and  distorted  production,  may  still  fairly 
assert  for  the  Act  of  IS4A  an  important  and  salutary 
influence. 

It  would  be  quite  enough  to  justify  the  Bank  Act  if 
it  could  be  established  that  its  "mechanical"  action  is 
to  put  commercial  crises  further  apart,  and  to  diminish 
their  intensity  when,  in  spite  of  its  conservative  action, 
they  occur.  No  power  inheres  in  any  monetary  system 
to  prevent  excessive  speculation  with  its  evil  results  on 
production  and  trade.  Money  is,  at  the  most,  but  a  tool 
of  commerce.  We  have  seen  abundant  illustrations  of 
its  power  to  work  mischief  when  perverted  from  its  right 
uses,  but  the  office  of  a  true  money  is  simple  and  its  in- 
fluence limited.  It  does  a  great  work  in  saving  labor 


472  MONEY. 

in  the  exchanges  of  commodities,  and  in  measuring  and 
registering  the  mutual  obligations  of  the  parties  to  con- 
tracts; but  this  is  all  its  legitimate  service.  Having 
almost  unlimited  power  to  curse,  its  beneficence  is 
bounded  by  its  normal  function,  as  it  has  been  described. 
Granting  the  possibility  of  issuing  and  maintaining 
bank-notes  in  excess,  it  appears  to  me  that  a  salutary 
effect,  in  restraining  issues  during  the  times  when  spec- 
ulation is  insidiously  preparing  future  convulsions  of 
trade  and  productive  industry,  may  justly  be  ascribed 
to  the  Act  of  1844.  Its  failure  by  purely  mechanical 
action,  irrespective  of  the  discretion  of  the  directors,  to 
reduce  the  note-issues  correspondently  with  a  loss  of 
bullion  on  the  occasion  of  a  drain,  only  illustrates  the 
proposition  of  Mr.  Bagehot,1  that  the  problem  of  man- 
aging a  panic  is  primarily  a  mercantile  one. 

THE  TREATMENT  OF  PANICS  AND  CRISES. 

"When  panics  and  crises  occur,  as  they  will  under  any 
monetary  system,  though  not  with  the  same  frequency 
and  severity  under  all,  they  are  to  be  dealt  with,  not  by 
the  heroic  method  of  contraction,  but  on  the  principle 
of  re-inforcing  the  parts  first  and  especially  assaulted 
with  the  most  liberal  support  from  the  whole  industrial 
and  commercial  body.  Whether  paper  money  occasion- 
ed the  mischief  or  not,  the  mischief  has  already  been 
done  when  the  panic  begins.  Curative  and  sanative 
measures  are  not  necessarily  in  the  line  of  preventive 
measures.  It  was  superstition  which  in  the  Middle  Ages 
gave  to  the  weapon  which  had  made  the  wound  a  pe- 
culiar efficacy  in  performing  the  cure. 

1  Lombard  Street,  p.  52. 


THE  TREATMENT  OF  PANICS.  473 

A  panic  implies,  sometimes,  previous  overtrading  and 
the  distortion  of  productive  industry;  sometimes,  the 
unduly  rapid  conversion  of  circulating  into  fixed  capital1 
of  limited  uses,  or,  not  infrequently,  of  no  use  at  all.2 
Paper  money  may  or  may  not,  in  the  given  instance, 
have  contributed  to  this  result;  but,  however  it  came 
about,  when  the  panic  is  once  upon  the  country  there 
is  only  one  thing  which  can  be  done,  and  that  is  to 
spread  the  strain  as  widely  as  possible.  This  is  to  be 
done  by  borrowing.  Even  if  the  paper  money  did  the 
mischief,  it  is,  in  the  presence  of  a  panic,  of  no  more 
consequence  than  the  knife  which  gave  the  wound  from 
which  the  patient  lies  bleeding.  The  knife  may  be  of 
great  interest  to  the  coroner ;  it  is  worth  nothing  for  the 
purposes  of  the  physician. 

Panic  indicates,  we  repeat,  either3  that  the  proportion 

1  See  Mr.  Wilson's  account  of  this  process  in  England  during  the 
railway  mania  which  preceded  the  catastrophe  of  1846-7. — [Capital, 
Currency  and  Banking.] 

2  In  his  evidence  before  the  Committee  on  Banking  and:  Currency, 
at  Washington,   1874,  Mr.  Forbes  remarked   concerning  the  New 
York  Banks  in  1873 :   "  Their  capital  needed  for  legitimate  purposes 
was  practically  lent  out  on  certain  iron  rails,  railroad  ties,  bridges 
and  rolling  stock,  called  railroads,  many  of  them  laid  down  in  places 
where  these  materials  were  practically  useless." 

Mr.Condy  Raguet  remarks  respecting  the  early  "internal  improve- 
ments" of  Pennsylvania:  "The  process  which  has  in  reality  taken 
place  has  been  the  mere  transmutation  of  stone  and  lime,  wood  and 
iron,  from  a  form  in  which  they  possessed  a  value,  into  one  in  which 
they  possess  no  value;  and  the  conversion  of  a  large  quantity  of 
bread  and  meat,  whisky  and  rum,  butter  and  milk,  sugar  and  coffee, 
coats  and  jackets,  coal  and  wood,  hay  and  oats,  into  roads  and  canals, 
without  the  possibility  of  a  reconversion  to  those  original  elements." 
— [Currency  and  Banking,  p.  63.] 

3 1  am  supposing  that  the  solvency  of  the  bank-note  is  not  in  ques- 
tion among  the  mass  of  holders,  in  such  a  way  as  to  cause  a  run 


474  MONET. 

existing  between  fixed  and  circulating  capital  has  been 
profoundly  disturbed  by  speculative  investments,  or 
that  the  relations  between  the  different  classes  of  com- 
modities which  make  up  the  circulating  capital  of  the 
country  have  been  distorted  and  perverted  by  specula- 
tive overtrading,  and  consequent  overproduction  in  cer- 
tain lines. 

At  once  to  re-inforce  the  parts  which  have  been 
weakened  by  such  disturbance  of  relations  between 
fixed  and  circulating  capital,  or  between  the  different 
classes  of  circulating  capital,  and  in  time  to  distribute 
the  strain  as  far  as  may  be  over  the  entire  system :  this 
is  the  problem  in  a  panic.  This  is  to  be  done,  as  was 
said,  by  borrowing,  generally  through  the  banking 
agency.  Of  course,  what  is  thus  borrowed  must  ulti- 
mately be  repaid.  No  expedient  can  restore  the  wealth 
which  has  been  squandered  in  the  extravagant  living 
which  a  period  of  overtrading  inevitably  induces,  or  re- 
place the  capital  which  has  been,  to  all  present,  prac- 
tical purposes,  lost  by  being  directed  prematurely  and 
excessively  into  speculative  enterprises.  Nothing  but 
industry  and  frugality  will  suffice  to  repair  the  waste  of 
energy  and  resources  of  which  a  panic,  such  as  occurred 
in  England  in  1866  and  in  the  United  States  in  1873,  is 
the  certain  retribution;  but  the  very  salvation  of  the 
existing  machinery  of  production  and  trade  may  depend 
on  the  ability  to  distribute  the  strain  over  a  larger  sur- 
face than  that  which  is  first  attacked,  and  to  give  time 
for  the  forces  of  repair  and  restoration  to  operate.  This 
is  done  by 

upon  the  bank  far  redemption.  This  sort  of  panic  is  now  not 
known  in  England.  We  have  seen  that  Prof.  Price,  who  severely 
criticises  the  Act  of  1844  in  many  respects,  concedes  that  it  has 
placed  the  country  circulation  above  the  discredit  which  attached  to 
it  in  1825. 


RAISING  THE  RATE  OF  INTEREST.  475 

RAISING  THE  RATE  OF  INTEREST. 

"When  the  exchanges,"  says  Mr.  Goschen,  "are  man- 
ifestly against  any  country,  and  it  is  perceived  that  a 
balance  of  indebtedness  is  the  cause,  the  equilibrium 
can  be  restored  only  in  two  ways ;  the  one  being  the  in- 
crease of  exports  and  diminution  of  imports,  the  other 
an  advance  in  the  rate  of  interest. 

"When  the  payments  for  imports  continue  for  any 
length  of  time  in  excess  of  the  receipts  from  exports, 
the  redress  of  the  balance  can  only  take  place  by  ceas- 
ing to  incur  liabilities,  that  is  to  say,  by  a  change  in  the 

course  of  trade But  what  we  are  at  present 

most  concerned  to  examine  is  the  operation  of  a  high 
rate  of  interest  in  those  more  usual  cases  where  we  have 
to  deal  with  temporary  fluctuations  and  sudden  emer- 
gencies, such  as  may  be  caused  by  the  loss  of  a  harvest, 
or  by  a  period  of  general  national  extravagance,  ending 
in  a  critical  inflation  of  prices,  or  by  excessive  warlike 
expenditure. 

"In  such  times,  when  the  resources  of  a  country  are 
crippled  for  the  moment  and  its  debts  increased,  it  is 
most  desirable,  and  indeed  absolutely  indispensable, 
that  not  only  bankers  and  merchants,  but  also  the  pub- 
lic at  large,  should  clearly  understand  how  quick  and 
effectual  a  relief  may  be  afforded  by  a  high  rate  of  inter- 
.est,  which  is,  indeed,  the  natural  result  of  such  a  state 
of  things.  Those  who  imagine  that  what  is  called  an 
oppressive  rate  of  interest  adds  to  the  losses  and  diffi- 
culties against  which  the  community  have  at  such  peri- 
ods to  contend,  seem  very  much  in  error.  .  .  .  The 
efficacy  of  that  corrective  of  so-called  unfavorable  ex- 
changes, on  which  we  have  been  dilating,  has  been  most 
thoroughly  tested  since  the  Bank  of  England  has  adopt- 


476  MONEY. 

ed  the  system  of  varying  its  minimum  rate  of  discount 
more  rapidly  and  more  extensively  than  was  its  practice 
in  former  years.  The  fact  has  been  that  almost  every 
advance  in  the  bank  rate  of  discount  is  followed  by  a 
turn  of  the  exchanges  in  favor  of  England ;  and,  vice 
versa,  as  soon  as  the  rate  of  interest  is  lowered,  the  ex- 
changes become  less  favorable.  .  .  .  Foreign  cred- 
itors give  their  English  debtors  a  respite,  and  prefer  to 
wait  longer  for  remittances,  gaining  interest  meanwhile 
at  the  profitable  English  rate."  Mr.  Goschen  concludes : 
"It  is  clear  that  there  is  no  corrective" of  a  drain  of  gold 
and  all  its  attendant  consequences  more  powerful  and 
effectual  than  a  rapid  advance  in  the  rates  of  discount. 
It  is  the  only  mode  by  which  that  which  is  on  the  point 
of  being  lost  may  be  retained,  or  that  which  is  actually 
gone  may  be  replaced ;  and  its  natural  effect  is,  not  to 
produce  a  scarcity  of  money,1  .  .  .  but  to  remedy 
and  correct  this  scarcity  by  offering  a  premium  to  the 
rest  of  the  world  to  send  their  capital  or  money  to  the 
dearest  market." — [Foreign  Exchanges,  pp.  128-48.] 


Such  is  the  theory  of  regulating  the  exchanges  which 
is  at  present  generally  accepted  in  England,  and  which 
has,  since  the  panic  of  1847,  governed  the  action  of  the 
Bank  in  periods  of  drain.  It  will  be  seen  that  it  differs 
widely  from  the  scheme  of  correcting  the  exchanges 
which  was  maintained  by  Mr.  Eicardo,  Mr.  Norman, 
and  Lord  Overstone.  Not  that  the  two  schemes  are 
necessarily  antagonistic  in  practice ;  but  setting  out  with 
different  explanations  of  the  cause  of  the  drain,  they 
proceed  to  treat  the  evil  with  different  remedies. 

1  Mr.  Goschen  doubtless  means  a  scarcity  of  "  moneyed  capital." 


RAISING  THE  RATE  OF  INTEREST.  477 

But  it  may  be  asked,  is  not  the  existing  rate  of  inter- 
est the  necessary  outcome  of  the  existing  supply  of, 
and  the  existing  demand  for,  capital?  If  so,  how  can 
the  Bank  of  England,  or  any  other  fiscal  agent,  control 
that  rate  ?  It  must  be  confessed  that  English  writers 
are  much  inclined  to  speak  after  this  fashion.  Even 
Mr.  Goschen  gives  way  to  the  tendency  so  far  as  to 
make  admissions,  which,  if  confirmed,  would  take  from 
his  philosophy  of  drains  and  the  exchanges  all  value  as 
a  guide  in  practical  conduct. 

Thus  he  writes :  "It  may  be  said  that  an  advance  in 
the  rate  of  interest  has  been  spoken  of  as  if  money 
could  artificially  be  made  dear.  But  the  fact  is,  as  has 
already  been  pointed  out,  that,  when  a  considerable  ef- 
flux of  specie  is  taking  place,  the  rate  of  interest  will 
rise  in  the  natural  course  of  things.  The  abstraction 
caused  by  the  bullion  shipments  will  of  itself  tend  to 
raise  that  rate;  and  banking  establishments  will,  in 
their  own  interest  (which  will  be  identical  with  that  of 
the  public),  accelerate  this  result  as  far  as  lies  in  their 
power."— [P.  132.]  So  again:  "Not  that  it  is  to  be 
supposed  that  the  Bank  of  England  itself  can  make 
money  dear  or  cheap;"  and  again:  "The  real  impor- 
tance of  a  variation  in  the  minimum  rate  of  the  Bank 
does  not  consist  in  the  power  exercised  over,  but  in  the 
indications  afforded  by,  the  money  market." — [Ibid.,  p. 
133.] 

In  contrast  with  such  weak  admissions  by  Mr.  Go- 
schen, which  are  really  destructive  of  his  own  theory 
of  the  exchanges  and  of  foreign  drains,  it  will  be  in- 
structive to  read  these  sagacious  words  from  that  saga- 
cious economist,  Charles  Babbage.  "The  principle 
that  price  at  any  moment  is  dependent  on  the  relation 
of  the  supply  to  the  demand,  is  true  to  the  full  extent 
40* 


478  MONEY. 

only  when  the  whole  supply  is  in  the  hands  of  a  very 
large  number  of  small  holders,  and  the  demand  is 
caused  by  the  wants  of  another  set  of  persons,  each  of 
whom  requires  only  a  very  small  quantity." — [Econo- 
my of  Manufactures,  p.  141.] 

Mr.  Bagehot  presents  the  matter  thus  :  "  A  very  con- 
siderable holder  of  an  article  may  for  a  time  vitally  af- 
fect its  value  if  he  lay  down  the  minimum  price  which 
he  will  take  and  obstinately  adhere  to  it.  This  is  the 
way  in  which  the  value  of  money  in  Lombard  Street  is 
settled.  The  Bank  of  England  used  sto  be  a  predomi- 
nant, and  is  still  a  most  important,1  dealer  in  money.  It 
lays  down  the  least  price  at  which  alone  it  will  dispose 
of  its  stock,  and  this  for  the  most  part  enables  other 
dealers  to  obtain  that  price  or  something  near  it."- 
[Lombard  Street,  p.  114.] 

This  is  a  just  view  of  the  relations  of  the  Bank  of  En- 
gland to  the  rate  of  discount,  and  it  gives  significance 
and  practical  importance  to  Mr.  Goschen's  theory  of  the 
regulation  of  the  exchanges. 

1  "  At  Dutch  auctions  an  upset  or  maximum  price  used  to  be  fixed 
by  the  seller,  and  he  came  down  in  his  bidding  till  he  found  a  buyer. 
The  value  of  money  is  fixed  in  Lombard  Street  in  much  the  same 
way,  only  that  the  upset  price  is  not  that  of  all  sellers,  but  that  of 
one  very  important  seller,  some  part  of  whose  supply  is  essential." — 
[Lombard  Street,  p.  115.] 


CHAPTEE  XXI. 

CONVERTIBLE  PAPER  MONEY  IN  THE  UNITED  STATES. 

IN  turning  to  the  United  States  we  are  required  at 
once  to  deal  with  a  question  which  has  been  intimated 
at  several  points  in  preceding  chapters,  but  which  I 
have  thought  it  best  not  to  move  until  now.  We  have 
marked  the  antagonism  of  the  two  schools  of  English 
economists,  professing  severally  %the  Currency  Principle 
and  the  Banking  Principle,  upon  the  question  whether 
Convertible  Paper  Money  can  be  issued  in  excess*. 

But  what  is  Convertible  Paper  Money?  Just  how 
much  is  implied  in  convertibility?1  We  cannot  pro- 
ceed far  in  our  discussion  of  American  paper  money 
unless  we  reach  a  precise  understanding  on  this  point, 
for  it  is  to  be  noted  that  some  of  the  strongest  advo- 
cates of  the  Banking  Principle  in  England  charge  that 
the  paper  money  of  the  United  States  has,  to  a  very 
great  extent,  not  been  convertible  in  any  true  sense; 
and  hence  they  give  warning  that  their  conclusions  rel- 
ative to  the  impossibility  of  excessive  issues  and  per- 
manent depreciation  do  not  apply  to  our  case. 

Since  our  English  cousins  are  inclined  to  deny  the 
convertibility,  in  their  sense  of  that  term,  of  our  paper 

1  "Convertibility  in  the  Currency  is  like  conscientiousness  in  a 
man;  it  lias  many  grades." — [Sumner,  Hist.  Am.  Currency,  p.  116.] 


480  MONET. 

money,  let  us  ask  what  were  the  peculiarities  of  our 
American  system,  say  between  the  resumption  of  specie 
payments  after  the  war  of  1812-5  and  the  outbreak  of 
the  civil  war  in  1861,  which  tended  to  defeat  the  full 
convertibility  of  our  bank  issues;  the  convertibility, 
that  is,  not  in  the  legal,  but  in  the  economical,  sense. 

In  the  first  place  we  had  the  fact  of  competing  issues. 
This  was  the  consideration  most  strongly  insisted  upon 
by  Mr.  Webster  and  the  advocates  of  the  Second  Bank 
of  the  United  States.  In  quoting  Mr.  Webster's  speech 
on  the  Bank  Lord  Overstone  said : 

"  The  very  existence  of  specie  payments  in  this  coun- 
try at  the  present  moment  is  attributable  to  the  influ- 
ence of  one  predominant  issuer,  charged  with  the  re- 
sponsibility of  maintaining  the  convertibility  of  its 
notes.  Without  the  Bank  of  England  to  warn  by  its 
example  and  to  control*  by  its  power,  the  paper  issues 
would  have  been  regulated  in  no  degree  by  the  state  of 
the  exchanges,  but  solely  in  accordance  with  the  appar- 
ent wants  of  commerce  and  the  demands  of  the  trading 
world.  Increasing  issues  would  have  accompanied  de- 
creasing bullion,  until  even  the  appearance  of  a  mutual 
connection  would  no  longer  be  presented."1 

In  the  second  place  we  had  the  fact  of  the  want  of 
any  traditional  habit,  maintained  by  the  force  of  a 
strong  public  sentiment  throughout  the  banking  com- 
munity, for  the  due  exchange  of  bank-notes  among  the 
banks  themselves.2  This  is  the  point  Mr.  Wilson  es- 
pecially insists  upon. 

"By  an  agreement  between  the  different  banks,  they 

1  Remarks  on  the  Management  of  the  Circulation,  1840. 

8  It  is  from  the  want  of  a  system  of  mutual  exchange  of  notes 
that,  in  American  Banking  statistics,  the  column,  "Notes  of  other 
banks,"  assumes  so  much  importance. 


AMERICAN  PAPER-MONEY  BANKING.  481 

never  called  upon  each  other  to  pay  their  notes  in  spe- 
cie ;  and  thus  each  bank  always  held  large  quantities 
of  the  notes  of  other  banks  for  which  they  did  not  de- 
mand payment;  and  such  was  the  political  prejudice 
against  the  payment  of  specie,  that  any  private  individ- 
ual who  demanded  the  payment  of  specie  to  any  large 
amount  was  marked  as  a  common  victim  by  the  banks." 
—[Capital,  Currency  and  Banking,  p.  268.] 

There  was  no  time  when  this  statement  of  Mr.  Wilson 
would  have  applied  without  qualification  to  banks  in 
all  sections  of  the  United  States ;  yet  it  holds  true  in  a 
high  degree  of  the  banks  of  the  country  as  a  whole 
during  a  considerable  portion  of  our  financial  history. 
The  earliest  and  most  important  effort  to  secure  a 
prompt  and  regular  redemption  of  notes  was  through 
the  so-called  "Suffolk  Bank  system"  of  Massachusetts, 
afterwards  extended  throughout  New  England,  by  which 
all  the  country  banks  were  brought,  by  threats  of  out- 
lawry against  their  circulation,  to  keep  a  deposit  in  the 
Suffolk  Bank  ample  to  redeem  their  notes  on  presen- 
tation. The  effect  of  this  system,  which  became  the 
great  distinguishing  fact  of  the  New  England  paper 
money,  was  to  give  the  bank-notes  of  that  section  a  wide 
acceptance  all  over  the  Union. 

The  third  feature  of  the  paper  money  system  of  the 
United  States  which  militated  against  convertibility 
was  the  issue  of  small  notes.1  This  affects  convertibil- 

1  "  Small  notes,"  said  Mr.  Webster  in  his  speech  on  the  Bank,  in 
1832,  "  have  expelled  dollars  and  half-dollars  from  circulation  in  all  the 
States  in  which  such  notes  are  issued.  On  the  other  hand,  dollars  and 
half-dollars  abound  in  those  States  which  have  adopted  a  wiser  and 
safer  policy.  Virginia,  Pennsylvania,  Maryland,  Louisiana,  and  some 
other  States,  I  think  seven  in  all,  do  not  allow  their  banks  to  issue 
notes  under  $5."  A  sketch  of  the  history  of  small-note  issues  is 
given  by  Mr.  Raguet,  [Currency  and  Banking,  pp.  137-40.] 


482  MONEY. 

itv  in  two  ways :  first,  the  notes  pass  chiefly  in  the 
hands  of  those  persons  who  are  least  of  all  likely  to 
present  them  for  redemption,  except  under  the  influence 
of  panic.  Second,  they  expel  the  specie  which  should 
"saturate  the  circulation"1  and  afford  a  supply,  in  case 
of  need,  to  the  reserves  of  the  banks.  In  England  notes 
are  not  allowed  under  £5  ($25).  In  Scotland  the 
"small-note  system"  prevails,  but  there  no  notes  are 
issued  under  XI ;  while  in  the  United  States  notes  of 
$1  and  $2  have  at  all  times  formed  an  important  ele- 
ment of  the  issues,  and  in  many  sections  notes  for  frac- 
tions of  a  dollar  have  been  issued,  driving  even  the 
smallest  pieces  of  silver  out  of  circulation. 

A  fourth  fact  in  the  paper-money  system  of  the  Unit- 
ed States  during  the  period  of  which  we  speak,  was  a 
public  sentiment  always  unfavorable,  and  at  times  act- 
ively hostile,  to  the  presentation  of  notes  for  redemp- 
tion. 

The  natural  pressure  of  trade  upon  the  dealer,  or  the 
laborer,  to  receive  bank-notes  without  scrutiny  of  their 
character,  is  at  the  best  so  strong  as  somewhat  to  im- 
pair convertibility,  even  where  no  artificial  obstacle  is 
interposed. 

"The  taking  of  them  in  payment,"  says  Prof.  Price,  "is 
not  so  purely  a  voluntary  act  as  the  taking  of  a  check. 
There  is  a  kind  of  semi-compulsion  pressing  on  the  man 
to  whom  they  are  offered.  The  tradesman  who  rejected 
them  would  run  the  risk  of  losing  his  customer,  who 
might  be  tempted  into  the  rival  shop  where  no  objec- 
tion would  be  made  to  his  money ;  offense  might  be 
given  to  the  numerous  friends  and  customers  of  the 
bank  throughout  the  town.  No  doubt  there  is  always 

1  See  p.  441. 


AMERICAN  PAPER-MONEY  BANKING.  483 

the  remedy  of  demanding  gold  for  them ;  but  the  habit  of 
the  world  is  against  that  process." — [Principles  of  Cur- 
rency, p.  133.] 

"Everybody  knows,"  says  Mr.  McCulloch,  "that, 
whatever  notes  may  be  in  law,  they  are  in  most  parts  of 
the  country  practically  and  in  fact  legal  tender.1  The 
bulk  of  the  people  are  without  power  to  refuse  them. 
The  currency  of  many  extensive  districts  consists  in 
great  part  of  country  notes,  and  such  small  farmers  or 
tradesmen  as  should  decline  taking  them  would  be  ex- 
posed to  the  greatest  inconveniences." — [Commercial 
Dictionary.] 

But  there  was  more  than  the  unavoidable  pressure  of 
trade  to  compel  the  citizen  of  the  United  States  to  take 
bank-notes  without  scrutiny,  and  to'  allow  him  in  turn 
to  pass  them  off  in  exchange  without  presenting  them  at 
the  bank  for  redemption. 

"  The  habit  of  calling  for  specie,"  says  Prof.  Sumner, 
"had  never  been  formed,  and  it  was  sternly  discoun- 
tenanced by  public  opinion^"2 — [History  of  American 
Currency,  p.  157.] 

1  "It  was  the  catastrophe  of  the  year  1814,"  says  Mr.  Gallatin, 
"  which  first  disclosed,  not  only  the  insecurity  of  the  American  bank- 
ing system  as  then  existing,  but  also  that  when  a  paper  currency, 
driving  away  and  superseding  the  use  of  gold  and  silver,  has  insinu- 
ated itself  through  every  channel  of  circulation  and  become  the  only 
medium  of  exchange,   every  individual  finds  himself  in  fact  com- 
pelled to  receive  such  currency,  even  when  depreciated  more  than 
twenty  per  cent,  in  the  same  manner  as  if  it  had  been  a  legal  tender." 
— [Considerations,  etc.,  p.  6.] 

2  Of  the  power  of  public  opinion  in  such  a  matter  the  people  of 
the  United  States  have  recently  had  a  striking  illustration  in  the 
practical  exclusion  of  greenbacks,  during  and  since  the  war,  from 
ordinary  circulation  on  the  Pacific  Coast.     Though  legal  tender,  no 
man  dared  to  offer  United  States  paper  money  for  a  debt  contracted 


484  tiONEY. 

We  have  noted  certain  characteristics  of  American 
paper  money  prior  to  the  forced  circulation  given  to 
United  States  treasury-notes  in  1862,  which  distinguish 
it  in  a  marked  degree  from  that  of  England  during  the 
same  period,  and  especially  from  the  later  form  of  En- 
glish paper  money  as  organized  under  the  Bank  Act  of 
1844.  The  features  noted  were  all  such  as  to  impair 
more  or  less  seriously  the  convertibility  of  the  bank- 
note, and  thus,  even  in  the  view  of  the  advocates  of  the 
Banking  Principle,  to  take  away  the  security  which  they 
think  they  find  for  the  conformity  of  paper  to  metallic 
money;  while  in  the  view  of  those  who  hold  the  Cur- 
rency Principle,  the  features  of  the  American  system,  as 
noted,  must  have  aggravated  in  a  high  degree  that  tend- 
ency to  excessive  issues,  and  hence  to  depreciation, 
which,  as  they  assert,  inheres  in  all  paper  money  not 
based,  as  was  the  paper  money  of  Hamburg  and  Am- 
sterdam, through  many  generations,  cent,  per  cent.,  on 
the  precious  metals ;  but  which  evils  may  be  brought 
within  narrow  limits  in  a  system  like  that  of  England, 
where  the  circulation  is  controlled  by  one  dominant  in- 
stitution ;  where  banking  traditions  enforce  the  frequent 
interchange  and  mutual  redemption  of  paper;  where  is- 
sues are  restricted  to  notes  of  the  higher  denominations 
and  the  circulation  is  thus  surcharged  with  specie  in  the 
hands  of  the  people  and  of  the  small  dealers ;  and,  lastly, 
where  both  law  and  public  sentiment  make  it  the  un- 
challenged right  of  every  holder  to  demand  specie1  at 

in  United  States  gold  money  ;  and  all  the  large  commercial  transac- 
tions of  that  section  went  on  upon  a  gold  basis,  under  the  sufficient 
protection  of  a  consolidated  public  sentiment,  which  did  not  lose  its 
power  over  the  debtor  even  in  face  of  a  premium  of  150  per  cent. 

1  "  Convertibility  is  not  enough,  if  it  is  only  nominal,  and  if  no  one 
tests  its  reality  because  public  opinion  frowns  on  such  an  act,  or 
bank  displeasure  follows  it." — [Sumner,  Hist.  Am.  Currency,  p.  186.] 


AMERICAN  WRITERS.  485 

his  own  pleasure,  and  the  obligation  of  every  bank  at 
all  times  to  pay  specie,  without  condition,  without  de- 
mur, and  without  retaliation. 


The  writers  of  the  earlier  period  of  our  history  who 
were  most  conspicuous  in  their  opposition  to  issues  of 
paper  not  severely  restricted  and  regulated  to  prevent 
excess  were  Messrs.  "Wm.  M.  Gouge,  and  Coady  Ra- 
guet,  both  of  Philadelphia,  and  Prof.  Tucker,  of  Vir- 
ginia. 

The  near  contemplation  of  the  evils  of  excessive  issues 
and  oft-recurring  bank  suspensions  made  the  first  men- 
tioned of  these  writers  somewhat  less  discriminating 
than  was  just  in  his  strictures  upon  banks  and  the  issue 
of  paper  money,  and  while  his  "  History  of  Paper  Money 
and  Banking  in  the  United  States"  forms  a  valuable 
portion  of  our  economical  literature,  its  generalizations, 
and  at  times  its  specific  statements,  require  qualifica- 
tion. Mr.  Eaguet's  work  is  founded  upon  the  doc- 
trines of  the  English  Banking  School,  as  to  the  impossi- 
bility of  issuing  and  maintaining  an  excess  of  converti- 
ble paper ;  but  the  author  clearly  apprehended  the  fact 
that  the  American  bank  issues  did  not  meet  the  require- 
ments of  convertibility1  in  the  economical,  if  they  did 
in  the  legal,  sense. 

1  "  In  the  management  of  the  numerous  banks  of  the  United 
States  an  inexcusable  ignorance  of  first  principles  has  been  repeat- 
edly manifested,  and  hence  we  have  seen  repeated  expansions  and 
contractions  of  a  highly  prejudicial  nature.  .  .  .  The  ignorance 
of  some,  the  speculative  avarice  of  others,  and  the  desire  common  to 
all  to  amass  large  profits,  are  constantly  operating  to  effect  an  ex- 
pansion of  the  currency  to  the  utmost  limits  of  tension" — [Currency 
and  Banking,  p.  106-7.] 


486  MONEY. 

Prof.  Tucker,  also,  found  that  the  American  system  of 
paper  issues  suffered  from  the  lack  of  genuine  converti- 
bility ;  and  that,  in  consequence,  the  circulation  was  now 
inflated  and  now  deficient,  with  very  mischievous  effects 
upon  trade  and  production.1 

In  a  later  period  of  our  history  Prof.  Amasa  "Walker 
has  upheld  the  views  of  the  English  Currency  School, 
maintaining  not  merely  that  the  American  system  lack- 
ed the  requisite  of  convertibility ;  but  that  paper  mon- 
ey issued  in  excess  of  the  specie  held  for  its  redemption, 
under  whatever  system  of  management,'  tends  inevitably 
to  fluctuate  otherwise  than  metallic  money.  In  his 
pamphlet  on  "Money,"  published  after  the  panic  of 
1857,  and  in  his  treatise,  "The  Science  of  Wealth," 2  pub- 
lished after  the  Civil  War,  Prof.  Walker  maintained  this 
proposition  with  an  earnestness  and  force  which  have 
had  a  great  effect  in  checking  the  assent  which  Mr. 
Tooke's  defection  from  the  Currency  Principle  had  done 
much  to  secure  to  the  doctrine  of  the  English  Banking 
School,  that  paper  money  redeemable  in  specie  on  de- 
mand cannot  be  got  out,  or  kept  out,  in  excess  of  the 
volume  of  metallic  money,  which  under  the  same  cir- 
cumstances would  have  been  in  circulation. 

1  "  Whatever  may  be  the  mischiefs  of  overtrading  and  a  gambling, 
speculating  spirit  in  the  community,  and  they  are  for  the  time  very 
great,  banks  must  be  considered  responsible  for  a  large  portion  of  it. 
.  .  .  The  banks,  by  affording  aliment  to  this  spirit,  give  it  a  force 
and  vigor  of  mischief  it  could  not  otherwise  attain." — [Money  and 
Banks,  p.  188.] 

3  "Nous  ne  saurions  taire  1'expression  d'une  admiration  sincere 
pour  cet  ouvrage  capital :  Science  of  Wealth,  ouvrage  digne  d'etre  mis 
au  premier  rang  de  ceux  dont  T etude  de  1' economic  politique  peat 
le  mieux  s'enorgueillir." — [M.  Wolowski,  Journal  des  Economistes, 
October,  1868.] 


PROF.  A.   WALKERS  VIEWS.  487 

The  following  is  Prof.  Walker's  statement  of  the  vital 
principle  of  a  Convertible  Paper  Money,  or,  as  he  terms 
it,  a  Mixed1  Currency : 


"  The  great  principle  of  value  is :  demand  creates  sup- 
ply; supply  satisfies  demand. 

"A  mixed  currency  is  not  regulated  in  this  way.  In 
so  far  as  it  has  not  value,  it  is  not  controlled  by  the  laws 
of  value.  It  is  put  out  by  bank  managers  at  their 
pleasure  and  for  their  profit.  It  is  not  produced  by  la- 
bor. This  last  fact  removes  the  gravitation  which  alone 
can  secure  a  currency.  It  makes  it  a  thing  to  be  blown 
about  by  every  breeze,  carried  up  or  carried  down  with 
the  currents  or  whirled  around  in  the  eddies  of  trade. 
It  should  be  stable,  and  not  sport  for  the  winds.  There 
should  be  a  reason  for  the  putting  out  or  taking  in  of 
every  dollar  of  money ;  and  that  reason  should  be  found 
in  the  laws  of  value. 

"Now,  these  laws  control  the  expansion  or  contraction 
of  money,  or  a  value  currency.  If  it  is  increased,  as  it 
may  be  in  the  natural  course  of  commercial  transac- 
tions, it  is  because  actual  money  has  been  brought  into 
the  country  by  the  balance  of  trade ;  but  a  mixed  cur- 
rency is  increased  by  the  voluntary  and  interested  ac- 
tion of  bank  managers,  without  regard  to  the  laws  of 
value,  and  without  the  addition  of  a  dollar  to  the  real 
money  or  wealth  of  the  country.  The  increase  of  mon- 
ey [metallic]  by  importation  takes  place  in  obedience 
to  causes  that  are  gradual  and  appreciable;  and  any 

1  Compounded  of  value  and  credit,  in  uncertain  proportions.  The 
same  term  was  frequently  employed  by  Mr.  Norman,  in  England. 


488  MONEY. 

one  who  watches  the  course  of  commerce  can  antic- 
ipate its  arrival.  If  it  comes  in  excess  from  any  un- 
usual source,  it  easily  and  naturally  passes  off  to  other 
countries  till  the  balance  is  restored.  .  .  . 

"  We  have  found  that  the  quantity  of  a  mixed  currency 
is  not  governed  by  the  laws  of  value.  On  the  contrary, 
we  find  laws  positively  mischievous  substituted  for  the 
wholesome  operation  of  supply  and  demand. 

"First,  of  expansion.  The  more  there  is  issued  of  a 
mixed  currency,  the  more  will  be  wanted.  The  supply 
does  not  satisfy  the  demand,  it  further  excites  it.  Like 
an  unnatural  stimulus  taken  into  the  human  system,  it 
creates  an  increasing  desire  for  more.  There  are  two 
reasons  for  this :  one,  that,  as  the  currency  is  expanded, 
prices  are  raised  correspondingly,  and  more  currency  is 
demanded  to  effect  the  same  exchanges ;  the  other,  that 
the  speculation  inevitably  following  the  rise  of  prices 
leads  to  an  enormous  extension  and  repetition  of  indebt- 
edness, which  requires  for  its  discharge  a  greatly  in- 
creased amount  of  the  circulating  medium.  .  .  .  All 
this  is  quickened  and  helped  by  the  fact  that  the  man- 
ufacturers of  the  currency  are  ready  and  eager  to  crowd 
upon  the  public  all  it  will  take.1 

1  That  bank  managers  make  distinct  efforts  to  enlarge  their  circu- 
lation is  notorious.  Chalmers,  in  his  "  Estimates,"  says :  "  The  coun- 
try bankers  tried  various  projects  to  force  a  greater  number  of  their 
notes  into  circulation  than  the  business  of  the  nation  demanded." 
Macpherson,  in  his  "  History  of  Commerce,"  in  speaking  of  the  coun- 
try banks,  says :  "  Whose  eagerness  to  push  their  notes  into  circula- 
tion had  laid  the  foundation  of  their  own  misfortune."  Mr.  "Wake- 
field,  in  his  evidence  before  the  Agricultural  Committee  of  the  House 
of  Commons,  in  1821,  says :  "  Up  to  the  year  1813,  there  were  banks 
in  almost  all  parts  of  England  forcing  their  paper  into  circulation  at 
an  enormous  expense  to  themselves,  and  in  most  instances  it  had 
been  done  to  their  own  ruin.  There  were  bankers  who  gave  com- 


PROF.  A.   WALKERS  VIEWS.  489 

"  Secondly,  of  contraction.  We  have  seen  the  forces 
that  raise  the  currency  higher  and  higher.  .  .  .  The 
cause  which  limits  the  expansion  and  finally  produces 
contraction,  is  the  liability  of  the  notes  to  be  presented 
for  payment  in  money. 

"  The  occasion  for  this  cause  to  operate  may  be  al- 
most anything — a  political  convulsion,  an  adverse  bal- 
ance of  trade,  a  failure  of  some  large  trading  or  banking 
company,  or  an  unaccountable  mood  of  the  popular 
mind.  We  will  take  that  which  is  most  common  and 
sensible — an  adverse  balance  of  trade.  If  it  be  large,  the 
demand  for  specie  which  it  occasions  will  create  a  pro- 
found sensation  among  the  banks.  With  actual  money 
there  is  under  these  circumstances  no  reason  for  ex- 
citement or  alarm;  ten  millions  of  dollars  of  the  cur- 
rency will  discharge  that  amount  of  debt  abroad,  and 
the  currency  at  home  is  reduced  but  so  much. 

"  A  mixed  currency  has  in  itself  no  power  whatever 
to  satisfy  a  foreign  creditor.  If  ten  million  dollars  are 
to  be  paid  abroad,  it  must  be  taken  from  the  specie  of 

missions,  and  they  sent  persons  to  the  markets  to  take  up  notes  of 
other  bankers."  Even  the  Bank  of  England,  Mr.  Tooke  says, 
adopted  in  1823  "  new  modes  of  accommodation  to  individuals  in 
order  to  induce  them  to  borrow  at  4  per  cent." — [State  of  the  Cur- 
rency, p.  73.]  The  forms  which  these  efforts  have  taken  in  the 
United  States  have  at  times  been  almost  ludicrous.  Enterprising 
banks  have  sent  agents  hundreds  of  miles  to  exchange  their  notes  at 
hotels,  stores,  railway  offices,  etc.,  for  those  of  other  banks.  Mr. 
Raguet  refers  to  the  practice  of  loaning  notes,  with  the  express 
understanding  that  the  borrower  was  not  to  put  them  into  circulation 
within  a  certain  distance  of  the  place  of  issue.  "  Some  new  writer 
upon  the  wealth  of  nations,"  said  Mr.  Charles  Francis  Adams  in  1837, 
"  might  make  an  edifying  chapter  by  explaining  in  more  detail  all 
the  tricks  that  have  been  resorted  to  for  the  purpose  of  puffing  up 
the  circulation." — [Reflections  on  the  Currency,  p.  16.1 
41* 


490  MONEY. 

the  banks,  the  basis  of  the  currency  is  so  much  dimin- 
ished, and  the  circulation  must  be  curtailed  accordingly ; 
that  is,  notes  must  be  brought  in  and  not  put  out  again 
till  the  basis  is  restored.  If  the  proportion  of  specie, 
as  is  the  case  on  an  average  in  this  country,  is  only  as 
one  to  five  of  notes,  then  the  export  of  ten  million  dol- 
lars must  cause  a  contraction  to  the  extent  of  fifty  mil- 
lion dollars  at  home.  The  removal  of  so  much  currency 
causes  stringency,  and  stringency  causes  suspicion. 
Vague  apprehensions  abound ;  everybody  becomes  pru- 
dent, many  are  scared.  Here  is  another  reason  for  con- 
traction. With  a  value  currency,  the  fact  that  it  was  es- 
pecially wanted  would  be  a  reason  why  it  should  stay. 
Not  so  with  credit  money ;  it  won't  bear  to  be  looked  in 
the  face.1  .  . 

"It  should  be  borne  in  mind  that  these  contractions 
and  expansions  are  not  imaginary,  not  possible  only,  not 
merely  occasional,  nor  at  all  local ;  but  they  occur  fre- 
quently and  everywhere  within  the  field  of  such  a  cur- 
rency. 

"But,  it  may  be  asked,  are  there  not  natural  tides  in 
business,  irrespective  of  a  mixed  currency?  Certainly; 
but  they  are  never  aggravated  or  intensified  until  they 
end  in  panic  or  ruin.  They  are  calculable  and  health- 
ful. They  are  tests  of  business  character.  They  may 
go  to  the  extent  of  exposing  the  emptiness  of  bad  con- 
cerns, but  never  destroy  those  that  are  good.  When 
they  occur,  money  will  be  wanted  to  pay  debts;  but, 
when  one  debt  is  paid,  there  is  just  as  much  money  as 
before  with  which  to  pay  others.  The  pressure  does 

1  "  Dans  un  sauve-qui-peut,  tout  systeme  fonde  sur  le  credit  doit 
s'ecrouler,  car  le  sauve-qui-peut  est  le  negation  meme  du  credit." — 
[Chevalier,  La  Monnaie,  p.  67.] 


AMERICAN  PAPER-MONEY  BANKS.  491 

net  annihilate  any  part  of  the  currency.  The  party  wl^o 
receives  a  payment  does  not  put  the  money  away  in 
vaults,  not  to  appear  again  till  the  crisis  is  past.  The 
means  of  payment  can  be  reduced  only  by  the  amount 
actually  sent  out  of  the  country.  Gold  and  silver  are 
as  little  injured  by  panic  as  by  fire." — [Science  of 
Wealth,  pp.  155-60.] 


"We  have  seen  what  was  the  character  of  the  money 
of  the  American  colonial  period :  at  first,  cattle,  corn, 
wampum,  and  bullets,  slowly  superseding  a  barter  trade ; 
then,  small  supplies  of  silver  and  copper,  brought  in 
from  the  West  Indies  and  from  Europe,  constantly  com- 
plained of  as  inadequate ;  then,  bills  of  credit,  an  incon- 
vertible paper  money,  beginning  with  the  Massachusetts 
issues  of  1690,  extending  in  1709  to  the  other  New  En- 
gland colonies,  and  to  New  York  and  New  Jersey,  and 
soon  overspreading  the  whole  settled  country  from  New 
Hampshire  to  Georgia.  This  money  more  or  less  fully 
maintained  itself,  in  spite  of  the  inhibitions  of  the  roy- 
al governors,  the  Crown,  and  Parliament,  until  the  out- 
break of  the  Revolution  caused  the  issue,  in  overwhelm- 
ing amount,  of  the  soon  depreciated  and  discredited 
"  Continental  Currency." 

In  1790  there  were  three  banks  in  the  United  States : 
the  Bank  of  North  America,1  in  Philadelphia,  the  Bank 
of  New  York,  in  the  city  of  that  name,  and  the  Bank  of 
Massachusetts,  "established  in  the  Town  of  Boston" 
[A.  Hamilton,  Report  on  the  Bank].  In  1791  was  char- 
tered the  First  Bank  of  the  United  States,  with  a  capital 

1  This  had  been  Robert  Morris's  bank  during  the  last  years  of  the 
Revolution.  It  had  gone  under  a  Pennsylvania  Charter,  and  is  still 
doing  business  under  the  National  Banking  Aot. 


492  MONEY. 

of  $10,000,000,  having  power  to  issue  notes  payable  on 
demand  in  specie.  It  is  significant  of  the  administra- 
tion of  public  affairs  in  this  country  at  that  period 
that,  though  the  act  chartering  the  Bank  provided  that 
a  report  of  its  condition  should  be  laid  before  the  Sec- 
retary of  the  Treasury  whenever  required,  "  but  not  oft- 
ener  than  once  a  week,"  the  records  of  the  Treasury  De- 
partment do  not  show  that  any  formal  reports  were 
ever  rendered  during  the  twenty  years  of  its  existence ; 
and  the  only  balanced  statements  to  be  found  showing 
the  state  of  the  Bank  are  two  contained  in  letters  of 
Secretary  Gallatin,  March  2, 1809,  and  January  24, 1811.1 

On  the  refusal  of  Congress  to  recharter  the  Bank2  in 
1811,  large  numbers  of  State  banks  sprang  into  exist- 
ence, almost  all  of  the  usual  American  joint-stock  type, 
on  the  principle  of  limited  liability.3  The  outbreak  of 
war  in  1812  caused  the  failure  of  nearly  all  of  these,  out- 
side New  England  which  still  maintained  specie  pay- 
ments, drawing  silver  in  large  amounts  from  the  States 
in  suspension.  The  funds  of  the  United  States,  which 
had  been  deposited  in  the  insolvent  banks,  were  in  great 
measure  lost.4 

The  check  of  redemption,  even  to  the  very  limited  ex- 

1  Report  of  the  Comptroller  of  the  Currency,  1876,  pp.  8-9. 

a  "  It  is  our  deliberate  opinion  that  the  suspension  [of  1814]  might 
have  been  prevented  at  the  time  when  it  took  place,  had  the  former 
Bank  of  the  United  States  been  still  in  existence."— {Gallatin,  Con- 
siderations, etc.] 

8  "  The  banks  in  America  are  under  limited  responsibility,  while 
in  this  country,  with  the  exception  of  the  Bank  of  England,  the  Bank 
of  Ireland,  and  one  or  two  of  the  chartered  banks  in  Scotland,  the 
issuing  bankers  are  liable  to  the  whole  extent  of  their  property." — 
[Tooke,  Hist,  of  Prices,  1839-47,  p.  257.] 

4  Nearly  $9,000,000  of  Treasury  funds  were,  in  1814,  in  suspended 
banks. 


AMERICAN  PAPER-MONET  BANKS.  493 

tent  in  which  it  had  existed,  being  withdrawn  by  the 
suspension,  the  banks  continued  to  pour  out  their  notes 
until  the  issues,  which  stood  in  1811  at  $28,000,000, 
reached,  according  to  Secretary  Crawford,  $62,000,000 
to  $70,000,000  in  1813,  and  $99,000,000  to  $110,000,000 
in  1815.  The  vague  form  of  these  statements  is  signifi- 
cant, not  only  of  the  absence  of  all  regulation  of  issues, 
but  even  of  public  intelligence  respecting  the  facts  of 
issue.  The  action  of  the  banks  in  a  state  of  suspen- 
sion, under  the  wretched  system  of  easily  condoning 
bankruptcy  which  has  done  so  much  to  pervert  the 
trade  and  production  of  the  United  States,  to  lower  the 
national  standard  of  morality,  and  even  to  infect  our 
politics  with  dishonesty,  is  thus  described  by  Mr. 
Baguet : 

"  Banks,  when  they  default  in  their  payments,  not  only 
never  ask  the  indulgence  of  their  creditors  for  any 
specified  extension  of  time,  but  they  do  not  even  think 
themselves  under  obligations  to  pay  interest  to  their 
creditors  for  the  funds  they  forcibly  detain  from  them; 
nay,  they  very  frequently,  in  the  midst  of  their  insolvency, 
declare  dividends  of  the  very  profits  which  actually  be- 
long to  their  creditors,  who,  and  not  the  stockholders, 
are  entitled  to  interest  for  their  withholden  funds.  Ex- 
cepting where  legislative  enactments  have  forbidden 
dividends  under  a  suspension  of  payments,  instances  are 
extremely  rare  wherein  a  sense  of  justice  on  the  part  of 
the  directors  of  banks  has  led  them  to  refrain  from  such 
manifest  injustice,  and  the  consequence  has  been  that 
a  direct  inducement  is  thereby  created  for  taking  no  steps 
towards  a  resumption  of  payment."1 — [Currency  and 
Banking,  p.  158.] 

1  A  few  States  sought  to  remedy  this  evil  by  a  heavy  fine  on  banks 
remaining  in  suspension.  Thus,  the  discount  in  Boston  on  New 


494  MONEY. 

Of  course,  in  a  country  where  such  things  could  be 
done,  much  more  in  a  country  where  such  things  were 
done  frequently  and  without  rebuke,  it  was  rank  non- 
sense to  talk  of  convertibility.1  In  1814  Mr.  Dallas, 
Secretary  of  the  Treasury,  wrote : 

"The  multiplication  of  State  banks  in  the  several 
States  has  so  increased  the  quantity  of  paper  currency 
that  it  would  be  difficult  to  calculate  its  amount,  and 
still  more  difficult  to  ascertain  its  value.  .  .  .  There 
exists  at  this  time  no  adequate  circulating  medium 
common  to  the  citizens  of  the  United  States."  The  de- 
preciation of  the  bank  paper  at  the  close  of  the  war 
reached  in  some  instances  twenty  or  twenty-five  per 
cent.  Throughout  1816  the  banks  continued  to  issue 
largely  their  discredited  notes,  while  floods  of  unchar- 
tered  paper  were  poured  out,  in  notes  of  all  denomina- 
tions from  six  cents  upwards. 

The  war  with  Great  Britain  had  given  rise  to  the 
treasury-note  system,  which  was  extensively  resorted 

England  bank-notes  having  gone  up  in  1809  to  10,  30,  and  in  some 
cases  50  per  cent.,  the  legislature  of  Massachusetts  passed  an  Act 
in  January,  1810,  affixing  a  penalty  of  2  per  cent,  per  month,  payable 
by  the  bank  to  the  bill-holder,  for  refusal  or  failure  to  redeem  notes 
on  presentation. 

1  "  By  convertibility  of  the  paper,  according  to  the  ordinary  significa- 
tion of  the  term  when  applied  to  bank-notes-  in  this  country,  is  meant 
that  the  holder  of  a  promissory  note,  payable  on  demand,  may  require 
payment  in  coin  of  a  certain  weight  and  fineness,  and  in  the  event 
of  refusal  or  demur,  such  payment  is  enforced  "by  law  against  the 
issuer  to  the  utmost  extent  of  his  property.  The  issuer,  whether  a  pri- 
vate or  joint-stock  banker,  is  considered  to  have  failed  ;  the  circulation 
of  his  notes  is  at  an  end,  and  he  is  subject  to  the  process  usual  in  cases 
of  insolvency  ;  while  anything  like  fraud  on  the  part  of  the  banker  is 
visited  with  severe  penalties."" — [Tooke,  History  of  Prices,  1839-47,  p. 
251.] 


THE  SECOND  UNITED  STATES  BANK.  495 

to l  and  contributed  to  the  general  excess  of  the  circulat- 
ing medium.  Of  this  measure  Mr.  Calhoun  was  always 
a  strenuous  advocate.2  This  measure  the  banks,  natu- 
rally enough,  opposed.  The  treasury-notes  were  not  of 
forced  circulation ;  they  failed  to  be  paid  at  maturity ; 
and  general  distrust  and  commercial  distress  ensued. 

The  evils  of  the  financial  situation  led  to  the  estab- 
lishment, in  1816,  of  the  Second  Bank  of  the  United 
States,  with  a  capital  of  $35,000,000,  notes  not  to  be  is- 
sued below  $5.  The  regulation  of  the  circulation  was 
looked  for  from  this  powerfuj  fiscal  agent.  But  the 
country  was  already  on  the  verge  of  a  crisis.  The  State 
banks  began  to  fail  in  1818,  and  a^econd  general  sus- 
pension occurred  in  1819,  extending  through  the  two 
years  following.  The  paper  money  afloat  at  once  ran 
down,  as  estimated  by  Secretary  Crawford,  from  $99- 
110,000,000  in  1815,  to  $45-53,000,000  in  1819.  The 
Bank  of  the  United  States  sustained  heavy  losses,  and 
its  financial  condition  was  only  re-established  by  an  im- 
portation of  $7,000,000  in  specie,  at  the  expense  of  half 
a  million.  Still  another  shock  was  experienced  in  1825, 
but  this  manifestly  had  not  originated  in  the  United 
States,  having  been  communicated  from  England,  where 
the  suffering  was  far  more  severe.  In  the  United  States 

1  And,   again,   1837-1843,   so   that  between   1812   and  1843    the 
treasury-note  issues  aggregated  $84,611,828. — [N.  Y.  Banker's  Maga- 
zine, July,  1861.] 

2  "  It  is  like  an  individual  using  his  notes  of  hand,  having  a  short 
date  to  run,  to  meet  his  engagements.     The  return  of  these  would- 
soon  embarrass  him ;  to  avoid  which,  to  enable  him  to  plunge  more 
deeply  in  debt,  the  resort,  on  the  part  of  the  thoughtless,  is  usually 
to  a  mortgage.     Such,  I  apprehend,  is  the  case  in  the  present  in- 
stance ;    for  what  is  a  permanent  loan  but  a  mortgage  upon  the 
wealth  and  industry  of  the  country  ?  " — [Speech  in  opposing  the  Loan 
Bill  of  1841.] 


496  MONEY. 

the  crisis  was  not  particularly  a  bank  crisis.  Most 
of  the  banks  that  suspended  proved  to  have  failed  utterly. 
Again,  in  1828  and  1829J  considerable  pressure  was  ex- 
perienced by  the  money  market,  as  the  consequence  of 
extensive  overtrading  in  1827. 

The  office  which  had  been  expected  of  the  Bank  of 
the  United  States  was  performed  only  in  part.  How 
far  the  management  was  at  fault  for  the  degree  of  failure 
which  occurred  it  is  not  our  part  to  inquire.1  Practical 
inconvertibility  characterized  the  issues  of  the  joint- 
stock  banks  of  the  United  States  down  to  1834.  Loose- 
ness of  management,  the  want  of  legal  regulation,  the 
absence  of  any  authoritative  and  effective  business  tra- 
ditions and  maxims,  with,  in  not  a  few  cases,  purposed 
swindling  of  the  most  outrageous  character,2  committed 
always  with  entire  impunity,  make  the  early  history  of 
paper-money  banking  in  the  United  States  exceedingly 
discreditable.3  The  popular  term,  "  Wildcat  Banking," 

1  President  Yan  Buren,  in  his  message  of  1839,  arraigns  the  Bank 
as  follows :  "At  every  period  of  banking  excess  it  took  the  lead. 
In  1817  and  1818;  in  1823,  in  1831,  and  in  1834,  its  vast  expansions, 
followed  by  distressing  contractions,  led  to  those  of  the  State  insti- 
tutions. It  swelled  and  maddened  the  tides  of  the  banking  system, 
but  seldom  allayed  or  safely  directed  them." 

a  Prof.  Summer  gives  the  following  brief  but  eloquent  account  of 
the  Farmers'  Exchange  Bank  of  Gloucester:  "Its  capital  was  $1,- 
000,000.  Only  $19,141.86  were  ever  paid  in,  and  of  this  the  direct- 
ors withdrew  what  they  paid  in,  leaving  $3,081.11.  One  Dexter 
bought  out  eleven  of  the  directors  for  $1,300  each,  paid  out  of  the 
bank's  funds.  He  borrowed  of.  the  bank  $760,265.  When  it  failed 
it  had  $86.46  in  specie;  bills  unknown;  the  Committee  estimated 
them  at  $580,000." — [Hist.  Am.  Currency,  p.  62.]  See  also  Mr.  Ra- 
guet's  account  of  the  Newbern  and  Cape  Fear  banks  of  North  Caro- 
lina [Currency  and  Banking,  p.  118]. 

3  "  La  triste  histoire  des  banques  des  Etats  Unis  n'est  que  trop 
connue :  elle  a  ete  si  f econde  en  desastres  que  des  hommes  consid- 


VICES  OF  AMERICAN  BANKING.  497 

not  inaptly  describes  much,  the  greater  part,  indeed,  of 
the  operations  of  American  banking  of  a  period  reach- 
ing even  down  to  1837.  The  worst  faults  of  our  national 
genius  here  made  their  worst  manifestations.  Those 
who  should  only  know  the  people  of  the  United  States 
through  the  banking  of  that  age  might  well  have  the 
most  contemptuous  idea  of  them. 

The  vices  of  character  which  permitted  the  discredit- 
able operations  which  have  been  known  as  banking  in 
pretty  much  every  part  of  the  country,  by  turns,  and 
in  some  from  first  to  last,  may  be  indicated  as  follows,: 

1.  The  national  haste  to  be  rich.  Americans  are  not 
avaricious.  No  people  expend  what  they  acquire  more 
liberally,  whether  for  personal  gratification  or  in  public 
benefactions.  But  if  an  American  is  going  to  be  rich 
any  time,  he  wants  to  be  rich  right  off.  He  is  impa- 
tient of  everything  which  does  not  yield  immediate  re- 
sults. There  is,  however,  no  work  in  which  the  present 
has  to  be  more  distinctly  subordinated  to  the  future 
than  banking ;  none  in  which  habit  on  the  part  of  the 
public,  and  reputation  on  the  part  of  those  who  solicit 
patronage,  have  so  much  to  do  as  in  deposit  banking. 
The  reputation  of  the  banker,  the  habit  of  deposit 
among  the  community,  can  only  be  slowly  built  up. 

erables,  des  financiers  de  premier  ordre,  G-allatin,  par  exemple,  en 
etaient  venus,  en  dernier  lieu,  a  se  demander  si  les  dangers  qu'entraine 
le  billet  de  banque,  ne  devait  pas  faire  renoncer  a  1'emploi  de  cet 
instrument  de  la  circulation." — [Wolowski,  La  Question  des  Banques, 
p.  381.] 

"  The  farmers  of  Illinois,  Michigan  and  Wisconsin,  would  rather 
encounter  war,  pestilence,  or  famine  than  the  old  style  of  unsecured 
'or  imperfectly  secured  bank-notes,  by  which  they  were  robbed  at 
frequent  intervals  during  the  twenty-five  years  preceding  the  war." 
— [Horace  White,  International  Review,  Nov.,  1877.] 


498  MONEY. 

2.  The  national  arrogance,  combined  with  the  igno- 
rance of  finance  which  characterizes  both  our  statesmen 
and  our  men  of  business,  creating  a  contempt  for  the 
wisdom  of  the  ages  and  the  experience  of  other  peoples 
in  all  that  relates  to  industry  and  trade. 

3.  The  rapidity  of  the  national  growth,  which  would 
have  outstripped  the  natural  development  of  any  bank- 
ing system,  however  well  and  fairly  founded.     The  same 
cause  has  compelled  us  to  put  up  with  rude  and  clumsy 
contrivances,  or  mere  make-shifts,  in  many  departments 
of  activity  besides  banking. 

4.  A  false  view  of  money  which  regards  coin  as  the 
proper  subject  of  governmental  regulation,  but  consid- 
ers the  manufacture  of  paper  money,  which  will  drive 
coin  out  of  circulation  and  take  its  place,  as  a  branch  of 
ordinary  business  with  which  the  state  has  no  right  to 
interfere.1 


So  completely  without  regulation,  or  even  inspection, 
was  the  so-called  Convertible  Paper  Money  of  the  United 

1  "If,"  said  Mr.  Hamilton,  in  his  Report  on  the  Bank,  "the  paper 
of  a  bank  is  to  be  permitted  to  insinuate  itself  into  all  the  revenues 
and  receipts  of  a  country ;  if  it  is  even  to  be  tolerated  as  the  substi- 
tute for  gold  and  silver  in  all  the  transactions  of  business,  it  becomes, 
in  either  view,  a  national  concern  of  the  first  magnitude." 

"  Is   it  not,"  asked   Mr.  Ricardo,  "  inconsistent  that  government 

-  should  use  its  power  to  protect  the  community  from  the  loss  of  one 

shilling  in  a  guinea ;  but  does  not  interfere  to  protect  them  from  the 

loss  of  the  whole  twenty  shillings  in  a  one-pound  note?" — [Proposals 

for  a  Secure  and  Economical  Currency.] 

Per  contra,  M.  Courcelle-Seneuil,  who  favors  the  American  system, 
says,  in  his  "  Operations  de  Banque  "  :  "  Les  droits  regaliens  .  .  . 
n'ont  rien  de  commun  avec  les  Emissions  de  billets  payables  a  vue  et 
au  porteur."— [P.  352.] 


VICES  OF  AMERICAN  BANKING.  499 

States  in  this  period,  that  it  is  scarcely  possible  to  re- 
cover any  of  the  facts  of  banking  capital,  circulation, 
deposits,  or  specie  reserve.  Hardly  a  statistical  frag- 
ment survives  as  an  indication  to  the  student  of  money. 
It  is  impossible  to  tell  accurately  what  was  the  total 
circulation  of  the  country  at  any  time.  There  is  only 
too  much  reason  to  suppose  that  the  officers  of  many 
banks  did  not  themselves  know  the  liabilities  of  the  in- 
stitutions whose  affairs  they  were  conducting.  I  have 
alluded  to  the  astonishing  fact  that  but  two  returns  of 
the  First  Bank  of  the  United  States  are  in  existence  or 
are  known  ever  to  have  been  rendered.  One  of  these 
was  manifestly  trumped  up ]  after  the  date. 

"When  such  a  state  of  things  could  exist  in  regard  to 
the  national  bank  of  the  United  States,  intended  as  a 

1  This  is  easily  seen  by  comparing  the  "  round  numbers "  of  the 
one  with  the  exact  figures  of  the  other. 

RESOURCES.                                 January,  1809.  January,  1811. 

Loans  and  discounts,      -        -        $15,000,000  $14,578,294 

U.  S.  6  per  cent,  stock,       -        -        2,230,000  2,750,000 

Other  U.  S.  indebtedness,         -      .  57,046 

Due  from  other  banks,        -        -           800,000  894,145 

Real  Estate,                                              480,000  500,653 

Notes  of  other  banks  on  hand,      -  393,341 

Specie,           -                                      5,000,000  5,009,567 

$23,510,000          $24,183,046 
LIABILITIES. 

Capital  stock,        ...  $10,000,000          $10,000,000 

Undivided  surplus,      -  510,000                 509,678 

Circulating  notes  outstanding,  4,500,000              5,037,125 

Individual  deposits,     -  8,500,000              5,900,423 

U.  S.  deposits,        -  1,929,999 

Due  to  other  banks,    -  634,348 

Unpaid  drafts  outstanding,      -  171,473 

$23,510,000          $24,183,046 


600  MONEY. 

regulator  of  the  general  circulation,  and  subject  to  im- 
mediate supervision  by  the  Treasury  Department,  it  is 
matter  of  small  wonder  that  the  numerous  small  and 
scattered  State  banks  furnish  no  data  for  the  student  of, 
money.  Notes  issued  under  such  a  system,  or  lack  oi 
system,  were,  in  every  economical  sense,  inconvertible 
The  pretense  of  conversion1  could  only  be  maintained 
under  a  general  consent  not  to  apply  the  test  of  redemp- 
tion ;  a  consent  enforced  upon  recusants  by  a  stringent 
public  opinion,  and,  in  border  communities,  there  is 
reason  to  believe,  by  a  sharp  compulsion. 

The  state  of  things  described  in  the  foregoing  pages 
almost  justifies  the  severe  language  of  Mr.  McCulloch  : 

"Had  a  committee  of  clever  men  been  selected  to  de- 
vise means  by  which  the  public  might  be  tempted  to  en- 
gage in  all  manner  of  absurd  projects,  and  be  most  eas- 
ily duped  and  swindled,  we  do  not  know  that  they  could 
have  hit  upon  anything  half  so  likely  to  effect  their  ob- 
ject as  the  existing  American  banking  system.  It  has 
no  one  redeeming  quality  about  it,  but  is,  from  begin- 
ning to  end,  a  compound  of  quackery  and  imposture." 
— [Commercial  Dictionary.] 

"No  person,"  says  Mr.  Fullarton,  in  his  "Regulation 
of  Currencies,"  "who  has  given  any  attention  to  the  ev- 
idence respecting  the  state  of  the  American  paper  cir- 
culation, will  venture  to  affirm  that,  even  previous  to 
the  universal  and  spontaneous  suspension  of  cash  pay- 
ments in  May,  1837,  that  circulation  was  really  and  prac- 
tically convertible." 

Of  the  war  made  by  President  Jackson  on  the  Bank 
of  the  United  States,  of  the  criminations  and  recrimina- 

1  Mr.  Crawford,  Secretary  of  the  Treasury,  in  his  report  of  1820, 
speaks  of  States  "where  the  convertibility  is  not  even  ostensible." 


THE  CRISIS  OF  1837-43.  5()1 

tions  of  that  scurrilous  period,  of  the  merits  or  demer- 
its of  the  Bank  management,  our  present  purpose  does 
not  require  us  to  speak.  The  Bank  was  killed,  whether 
by  the  stroke  of  justice  or  the  hand  of  the  assassin. 
The  removal  of  the  United  States  deposits,  by  the  will 
of  the  President,  and  the  selection  of  State  institutions 
as  depositories  of  the  public  funds,  incited  the  formation 
of  many  new  banks  and  a  rapid  increase  of  issues.  It  is 
about  this  time  that  we  begin  to  have  reliable  statistics 
of  the  paper  money  of  the  United  States.  The  aggre- 
gated circulation  of  the  banks,  exclusive  of  that  of  the 
Bank  of  the  United  States,  had  been  estimated  at  $61,- 
000,000  in  1830.  By  1834  it  had  risen  to  nearly  $95,- 
000,000,  while  it  was  further  increased  to  $149,000,000 
between  that  date  and  1837.  As  the  result  of  the  panic 
of  the  latter  year,  the  circulation  fell  off  to  $116,000,000. 
The  year  following  it  rose  to  $135,000,000,  only  to  fall 
to  $107,000,000,  as  the  result  of  the  crash  of  1839,  sink- 
ing to  $84,000,000  in  1841,  and  to  $58,500,000  in  1843. 


The  panic  of  1837,  the  second  and  heavier  shock  of 
1839, l  and  the  long  and  dreary  prostration  of  industry 
lasting  until  1843,  were  the  result  of  speculative'  over- 
trading, mainly  after  1833,  leading  to  a  general  distor- 
tion of  productive  industry,  and  to  speculative  invest- 
ments, especially  in  western  lands  and  mines,  in  rail- 
roads and  canals,  in  corner  lots  and  river  fronts,  which, 
even  had  they  been  intelligently  made,  would  have  far 

1  "  The  New  England  and  New  York  banks  held  out  bravely,  but, 
taking  the  country  over,  this  was  the  real  collapse  of  the  banking 
system  which  had  been  growing  up.  Three  hundred  and  forty-three 
out  of  eight  hundred  and  fifty  banks  closed  entirely,  and  sixty-two 
partially." — [Sumner,  Hist.  Am.  Currency,  p.  151.] 

42* 


502  MONEY. 

outrun  the  possible  growth  of  the  country,  locking  up 
in  unremunerative  enterprises  the  capital  needed  to 
conduct  the  manufactures  and  trade  of  the  nation.  Lan- 
guage could  not  well  exaggerate  the  extent  to  which  this 
misapplication  of  capital  and  this  distortion  of  produc- 
tion had  been  carried.  The  whole  head  was  sick  and 
the  whole  heart  faint.  Pew  things  remained  sound,  and 
these  were  not  unsuspected.  Even  the  ordinary  com- 
mercial machinery  of  the  country  was  carried  away  in 
the  crash  which  followed.  The  train  was  wrecked  upon 
the  track,  and  it  took  years  to  clear  away  the  debris  and 
get  the  ordinary  agencies  of  trade,  viz.,  exchanges,  com- 
mercial correspondence,  business  good- will,  and  in  some 
cases  even  the  facilities  of  transportation,  again  in 
working  order. 

That  the  evils  of  the  period  1834  to  1843  were  in  great 
measure  due  to  vices  of  paper-money  banking  is  not  to 
be  questioned.  The  opening  of  the  ' '  great  West "  would 
doubtless  have  led  to  much  wild  adventure,  industrially 
and  commercially ;  and  it  is  of  the  American  genius  to 
take  large  risks  boldly.  But  the  facility  of  issue,  with- 
out the  reality  or  scarcely  the  pretense  of  redemption, 
made  the  banks,  even  those  which  had  been  reasonably 
well  founded,  reckless  as  to  the  nature  of  the  enterprises 
which  they  assisted ;  while  the  money  thus  put  into  cir- 
culation, without  "reflux,"  enhanced  prices  and  still 
further  stimulated  both  speculative  investments  and 
speculative  trading.1  When  the  audacity  of  the  better 

1  Prof.  Sumner  expresses  the  opinion  that  between  1833  and  1837 
"  the  bank  expansion  only  kept  pace  with  the  speculative  expansion 
and  rise  of  prices,  and  that  the  issues,  although  opposed  to  all  sound 
rules  of  banking^  and  sure  in  the  end  to  prostrate  flankers  and 
dealers  together,  were  not  made  faster  than  they  were  called  for." — 
[Hist.  Am.  Currency,  p.  157.]  Doubtless  they  were  not.  The  ques- 


THE  NEW  YORK  SYSTEM.  503 

institutions  failed,  hundreds  of  "wildcat"  or  '"coon- 
box"  banks,  without  capital,  without  a  constituency, 
with  no  past  and  no  future,  whose  managers  risked  noth- 
ing and  had  nothing,  came  forward  with  offers  of  notes 
to  speculators  who  planned  to  build  cities  in  the  wilder- 
ness, or  contractors  who  wished  to  construct  roads  and 
bridges  without  materials,  tools,  or  means  of  paying 
wages.  Again,  as  in  early  New  England,1  a  bank  meant 
a  batch  of  paper  money. 

The  severe  experiences  of  this  period  led  in  some 
States2  to  legislation  designed  to  place  the  issue  of  bank- 
notes on  a  sounder  basis.  New  York  led  off  with  an  en- 
actment, afterwards  widely  imitated  in  other  States, 
which  secured  to  its  paper  money,  though  still  converti- 
ble only  in  a  very  limited  sense,  far  more  stability  than 
it  had  before  possessed. 

New  York  had  already  been  the  scene  of  an  effort  to 
secure  the  liabilities  of  banks.  Under  Gov.  Yan  Buren 
an  Act  was  passed,  in  1829,  establishing  the  so-called 
"Safety  Fund  System,"  under  which  forty  banks  were 
organized.  A  common  fund  was  to  be  created  by  con- 
tribution, annually,  of  one-half  per  cent,  of  the  capital 
of  each  bank,  until  three  per  cent,  of  such  capital  should 
have  been  paid  in.  This  fund  was  to  be  made  applica- 
ble to  the  payment  of  the  circulation  and  other  indebt- 

tion  is,  whether  these  issues  increased  the  aggregate  circulation  above 
the  amount  of  metallic  money  which  would  have  come  into  the  coun- 
try and  stayed  in,  had  the  paper  not  been  issued.  If  so,  while  the 
bank  expansion  kept  behind  the  speculative  expansion,  it  allowed  the 
speculative  expansion  not  only  to  precede  but  to  proceed.  In  the 
language  of  Tooke,  it  did  not  kindle  the  conflagration,  but  it  fed  the 
flames. 

1  See  p.  317. 

2  Massachusetts  had,  in  1829,  passed  a  general  banking  law  wln'ch 
limited  the  circulating  notes  to  25  per  cent,  in  excess  of  the  paid-up 
capital. 


504  MONEY. 

edness  of  any  individual  bank  contributing  which  should 
become  insolvent.  In  1841-2,  eleven  of  these  banks 
failed,  their  aggregate  liabilities  far  exceeding  the  total 
Safety  Fund.  An  extraordinary  levy  had  therefore  to  be 
made,  the  amount  required  being  advanced  by  the  State 
out  of  the  proceeds  of  a  special  loan.  After  1842  the 
Safety  Fund  was  made  applicable  only  to  the  payment 
of  circulating  notes. 

In  1838  the  Free  Banking  System  of  New  York  was 
established,  under  which  the  circulating  notes  were  to 
be  secured  by  a  deposit  of  United  States  or  New  York 
stocks,  or  bonds  and  mortgages  on  improved  and  pro- 
ductive real  estate.  In  1840  a  law  was  passed  requir- 
ing each  bank  to  redeem  its  notes  at  an  agency  of  the 
bank  in  New  York  City,  Albany,  or  Troy.  Two  of  the 
strongest  banks  in  New  York  City  about  this  time  inau- 
gurated a  plan  of  redemption  similar  to  that  of  the 
"Suffolk  Bank  System"  in  New  England.  These  pro- 
visions did  not,  however,  prove  sufficient  to  secure  even 
the  ultimate,  much  less  the  immediate,  convertibility  of 
the  paper  issues.  Previous  to  1843  not  less  than  twenty- 
nine  banks  organized  under  this  system  had  failed,  their 
aggregate  circulation  being  about  $1,250,000,  while  the 
securities  held  for  redemption  brought  less  than  half 
that  sum.  Subsequent  acts  of  the  legislature  increased 
the  proportion  of  securities  to  notes  issued. 

This  is  the  scheme  of  Secured  Circulation,  known  as 
the  New  York  system,  which,  as  stated,  has  been  widely 
imitated  in  the  legislation  of  other  States,  and  on  which, 
to  a  considerable  extent,  the  present  National  Bank  law 
of  the  United  States  was  framed. 

The  plan  of  basing  a  circulation  upon  securities1  is 

1  "  Monnayer  la  rente  est  tout  aussi  perilleux  que  de  monnayer  la 
terre." — [Wolowski,  La  Question  des  Banques,  p.  397.] 


THE  NEW  YORK  SYSTEM.  505 

not  economically  approved.  It  does  not  give  convert- 
ibility, in  the  sense  of  preventing  excessive  issues,  even 
in  the  view  of  the  advocates  of  the  Banking  Principle. 
It  does  not  even  secure  the  perfect  acceptability  of  the 
notes  as  a  medium  of  exchange,  since  the  receiver  de- 
sires to  be  assured  that  they  will,  at  any  moment,  be 
worth  what  he  takes  them  for,  whereas  the  New  York 
system,  at  the  best,  only  gives  him  a  pledge  that,  at  a 
future  date,  when  the  bank  shall  be  wound  up  and  the 
securities  disposed  of,  he  will  receive  that  which  he  may 
need  for  this  day's  subsistence  of  his  family,  or  to  meet 
the  present  pressing  wants  of  his  business. 

Indeed,  it  is  to  be  noted  that  the  New  York  system, 
even  as  amended  by  the  subsequent  legislation  referred 
to,  did  not  profess  to  secure  precise  convertibility. 

"Redemption  in  the  New  York  law,"  says  the  Comp- 
troller of  the  Currency,  in  his  report  of  1873,  "meant 
discount.  It  was  to  be  a  redemption  in  specie,  and  it 
was  founded  upon  the  avowed  principle  that  specie  was 
worth  more,  and  was  more  desirable  to  hold,  than  the 
circulating  notes  authorized." 

But,  while  the  New  York  system  can  not  be  accepted 
as  based  on  sound  principles  of  money,  or  even  of  bank- 
ing policy,  it  proved,  at  the  time,  so  great  a  check  upon 
the  wild  and  reckless  paper-money  banking  that  had 
prevailed  almost  universally  throughout  the  country,  and 
it  had  so  clear  an  effect  in  educating  the  public  mind  to 
more  correct  views  of  the  banking  function  and  of  the 
responsibilities  attaching  to  note-issues,  that  it  should 
be  spoken  of  with  respect  by  the  historian  of  American 
money. 

Even  more  important  was  the  system  of  mutual  re- 
demption, first  instituted  in  New  England  by  the  volun- 
tary action  of  the  Boston  banks,  and  by  the  New  York 
43 


506  MONEY. 

law  of  1840  made  compulsory  upon  the  banks  of  that 
great  commercial  State. 

"The  rates  of  discount  in  the  New  York  market," 
says  the  Comptroller  of  the  Currency  in  the  report  just 
quoted,  "upon  the  bank-notes  issued  and  in  general  cir- 
culation varied  from  1  of  1  per  cent,  to  1-J  per  cent., 
while  many  bank-notes  that  had  a  local  circulation  were 
quoted  at  from  5  to  10  per  cent,  discount.  The  notes 
of  the  New  York  and  New  England  banks,1  only,  circulated 
throughout  the  whole  Union,  like  the  National  Bank  currency 
of  to-day" 


The  painful  experience  of  1837-43,  and  the  discussions 
regarding  money  and  banking  which  that  experience 
called  out;  the  reduction  in  the  average  term  of  com- 
mercial credit;2  the  growth  of  a  public  sentiment  to  crit- 
icise and  condemn  excesses  in  paper-money  issues,  and 
the  formulation  of  maxims  and  precepts  more  or  less 
fully  recognized  by  bank  managers  as  binding  upon 
them ;  the  dying  out  of  the  rage  for  Western  speculation, 
and  the  general  conviction,  inspired  by  the  sufferings  of 
the  preceding  period,  that  wealth  is  to  be  produced,  not 

1  The  5th  Annual  Report  (1858)  of  the  Board  of  Managers  for  the 
Suppression  of  Counterfeiting  brings  out  the  fact  that  the  devices  of 
New  England  banks  were  especially  affected  by  the  counterfeiting 
fraternity,  on  account  of  the  freedom  with  which  the  notes  of  that 
section  passed  everywhere  without  particular  scrutiny. 

2  "  Long  credit  is  not  one  of  the  least  of  the  bad  effects  of  paper 
money.     .     .     .     Long  credit,  thus  obtained,  does  in  turn  forward  a 
bad  currency.     .     .     .     Insensibility  of  discredit  does  naturally  fol- 
low long  credit.'1 — [Tract,  The  Currencies  of  the  British  Plantations 
in  America.]     It  would  be  difficult  to  put  more  moral  and  economical 
philosophy  into  three  sentences. 


AMERICAN  PAPER  MONEY,  1844-60.  507 

discovered;  and,  lastly,  the  legislation  which  has  been 
described,  though  far  from  fulfilling  the  requirements  of 
either  good  banking  or  good  money:  all  these  causes 
combined  to  place  the  trade  and  industry  of  the  United 
States  on  a  sounder  basis  between  1844  and  1860.  Yet 
the  paper  money  still  tended  to  excess  on  the  occurrence 
of  every  speculative  impulse.  Kising  prices  inevitably 
distorted  production,  creating  an  excess  of  those  com- 
modities which  first  felt  the  force  of  the  upward  move- 
ment, and,  in  the  end,  disturbing  the  foreign  exchanges 
of  the  country.  Excess  was  surely  followed  by  deficien- 
cy, expansion  by  contraction,  as  the  downfall  of  prom- 
ising schemes  created  suspicion  and  alarm,  or  as  the 
outward  drain  of  specie  brought  upon  the  banks  the  ne- 
cessity of  reducing  their  liabilities  to  meet  impending 
danger.  By  such  oscillations  trade  was  made  highly 
speculative,  often  to  the  verge  of  gambling;  the  terms 
of  contracts  were  altered,  to  the  loss  now  of  one  party 
and  now  of  another;  false  impulse  and  false  direction 
were  frequently  given  to  labor  and  capital,  entailing 
great  waste  of  productive  energy.  Believing,  as  I  do 
with  M.  Wolowski,  that,  of  all  human  agencies,  money 
is  that  one  which  costs  least  for  the  work  it  performs, 
I  cannot  doubt  that  the  United  States  by  the  use  of 
such  a  vicious  medium  of  exchange  lost  every  few  years, 
through  misdirection  of  effort,  waste  in  expenditure,  and 
impairment  of  industrial  force,  enough  to  have  provided 
a  metallic  money  of  full  value,  adequate  to  all  the  de- 
mands of  their  domestic  trade. 

As  an  incident  of  the  Civil  War,  a  system  of  national 
"banks  was  created,  and  the  notes  of  the  State  banks 
were  taxed  out  of  circulation.  As  the  new  banks  came 
into  existence  when  the  country  was  in  a  state  of  sus- 
pension, and  their  notes  have  in  the  fourteen  years  in- 


508  MONEY. 

tervening  been  redeemable,  in  fact,  only  in  the  legal- 
tender  bills,  an  account  of  them  does  not  belong  to  the 
department  of  Convertible  Paper  Money.  In  the  fact  of 
a  uniform  law  for  all  the  issuing  banks  of  the  United 
States  is  found  for  the  first  time  in  our  history  the  possi- 
bility of  regulating  the  paper  money  circulation  of  the 
country,  should  specie  payments  be  restored  according 
to  the  pledge  of  the  government.  It  is  not,  however,  to 
be  expected  that  a  people  so  impatient  of  slow  gains,  so 
deeply  penetrated,  moreover,  with  the  belief  that  in  the 
domain  of  wealth  something  can  be  made  out  of  noth- 
ing, and  much  easily  out  of  little,  will  bring  themselves 
to  submit  to  the  restraints  of  law  and  tradition  which 
in  England,  France,  Germany  and  Sweden  reduce  the 
evils  of  paper  issues  to  a  minimum. 


In  the  present  mixed  condition  of  the  money  of  the 
United  States,1  there  are  seven  distinct  species  in  circu- 
lation, or  known  to  the  law. 

1.  Gold  coins,  legal  tender  to  any  extent ;  but,  in  fact, 
at  present  used  (except  per  force  of  special  contract)  for 
but  two  purposes:  in  payment  of  customs  duties,  and 
of  interest  on  the  public  debt. 

2.  Silver  and  nickel  coins,  a  token  or  subsidiary  mon- 
ey ;  legal  tender  only  in  limited  amounts. 

3.  Legal-tender  notes  issued  by  the  National  Treas- 
ury, known  popularly  as  Greenbacks,  limited  in  amount 
by  law. 

4.  The  small  residue  of  paper  "fractional  currency," 
which  has  not  been  superseded  by  the  new  debased 
silver  coinage. 

1  See  article,  "  Our  National  Currency,"  by  Prof.  Amasa  Walker, 
in  the  "International  Review,"  March,  1874. 


0  UR  PRESENT  NONE  Y.  509 

5.  National  bank-notes,  issued  by  2089  banks,1  under 
a  degree  of  regulation  by  government;   redeemable  in 
lawful  money  of  the  United  States ;  secured  by  deposit 
of  United  States  stocks. 

6.  Coin-bank  notes.     By  the  Act  of  Congress  of  July 
12,  1870,  the  Comptroller  of  the  Currency  was  author- 
ized to  issue  to  "  any  national  banking  association  de- 
positing the  bonds  of  the  government  bearing  interest 
payable  in  gold,  circulating  notes  of  different  denomina- 
tions of  not  less  than  five  dollars,  to  an  amount  not  ex- 
ceeding eighty  per  cent,  of  the  par  value  of  the  bonds 
deposited ;  which  notes  shall  bear  upon  their  face  the 
promise  to  pay  them  in  the  gold  coin  of  the  United 
States."     By  the  official  report  of  1876  there  were  nine 
of  these  banks,  all  in  California,  with  an  aggregate  cap- 
ital of  $4,450,000  and  a  circulation  of  $2,090,500. 

7.  Gold  notes,  in  denominations  of  twenty  dollars  and 
upwards,  furnished  by  the  government  to  all  who  depos- 
it coin  for  that  purpose  with  the  Treasurer  of  the  United 
States.     These  notes,  like  the  former  paper  money  of 
Genoa,  Hamburg  and  Amsterdam,  are  simply  receipts 
for  gold.     They  form  the  ideal  circulating  medium,  a 
money  combining  the  convenience  of  paper  with  the  se- 
curity and  stability  of  coin. 

OTHEK  EXAMPLES. 

The  country  which,  next  to  England,  makes  the  great- 
est figure   in  discussions  of  paper-money  banking,  is 

1  REPORT  OF  1876. 

Capital,  -         $499,802,232 

Surplus,  -     132,202,282 

Undivided  profits,        -  '    46,445,216 

Loans  and  Discounts,  -  -        $927,574,979 

Circulation,  -  292,166,039 


510  MONEY. 

Scotland.  The  remarkable  success  of  the  Scottish 
banks1  and  the  high  degree  of  convertibility  maintained 
by  their  paper,  has  afforded  the  advocates  of  unrestrict- 
ed issues  their  favorite  illustration.  And  to  those  who 
hold  that  paper-money  banking  inevitably  leads  to  bank- 
ruptcy, as  has  so  often  been  the  case  in  England  and 
the  United  States,  the  example  of  Scotland  is  a  sufficient 
answer.  But  we  have  seen  that,  conceding  the  solvency 
of  the  banks,  conceding  them  to  "good  makers,  good 
manufacturers"2  (Price),  and  to  be  able  abundantly  to 
protect  their  own  interests  and  to  secure  their  note-hold- 
ers, the  question  remains  whether  there  is  not  the  liabil- 
ity to  an  excessive  issue  of  notes  under  speculative  im- 
pulses in  the  commercial  or  industrial  body,  giving  full- 
er scope  and  freer  play  to  such  impulses  than  they  could 
obtain  through  the  use  of  metallic  money,  and  thus  lead- 
ing to  overtrading  and  the  consequent  distortion  of  pro- 
ductive industry,  or  to  extravagant  investments  and  the 
consequent  depletion  of  the  circulating  capital  available 
to  conduct  the  current  business  of  the  community. 

1  Mr.  McCulloch  remarks :  "  The  destruction  of  country  banks  in 
England  has  upon  three  different  occasions,  in  1792,  in  1814,  1815 
and  1816,  and  in  1825  and  1826,  produced  an  extent  of  bankruptcy 
and  misery  that  has  never  perhaps  been  equaled,   except  by  the 
breaking  up  of  the  Mississippi  scheme  in  France.     In   1826  forty- 
three  commissions  of  bankruptcy  were  issued  against  country  bank- 
ers, and  from  1809  to  1830  no  less  than  three  hundred  and  eleven. 
During  the  whole  of  this  period  not  a  single  Scotch  hank  gave  way." 

2  "  The  difference  between  the  two  results  in  no  way  proceeded 
from  any  variation  in  the  systems  of  currency  adopted  in  the  two 
countries.     The  method  of  issuing  notes  and  providing  for  their  con- 
vertibility was  identical  in  both.     The  failure  in  the  one  case  and  the 
success  in  the  other  were  exclusively  events  of  banking,  in  no  degree 
events  of  currency.     .     .     .     The  Scotch  issuers  of  notes  were  good 
bankers  and  kept  their  money ;  the  English  were  bad  bankers  and 
lost  it." — [Principles  of  Currency,  p.  128.] 


FRENCH  PAPER-MONEY  BANKING.  511 

Upon  this  point  the  success  of  Scotch  banking  proves 
nothing  either  way.  "Were  we  discussing  the  princi- 
ples of  banking,1  no  country  could  afford  more  instruc- 
tion. In  the  discussion  of  the  principles  of  money  it 
has  only  a  secondary  importance.  Prior  to  the  Act 
of  1844  Lord  Overstone  was  able  to  assert  that  "  all  the 
evils  to  which  a  trading  community  is  exposed :  fluctua- 
tions of  prices,  recurrence  of  commercial  pressure,  stag- 
nation of  markets,  losses  by  insolvency,  occur  with  as 
much  frequency  and  intensity  under  the  Scotch  System 
of  Currency,  as  under  that  which  exists  in  England."2 

To  the  paper  money  of  France, 3  however,  even  this 

1  An  account  of  Scotch  banking  is  given  by  Mr.  Inglis  Palgrave, 
in  his  "  Notes  on  Banking,"  pp.  10-26 ;  cf.  Grilbart  on  "  Banking,"  311, 
319, 424-5 ;  Tooke,  "History  of  Prices,"  iii,  205,  263 ;  Nicholson,  " Sci- 
ence of  Exchanges,"  45-9 ;  Wilson,  "  Capital,  Currency  and  Banking," 
2,  3,  97-8,  102,  234.     Two  facts  are  of  especial  importance  in  ex- 
planation of  Scotch  banking  successes.     The  first  is  that  all  land  is 
registered  (as  is  not  the  case  in  England),  enabling  the  public  easily 
to  ascertain  the  amount  of  real  property  possessed  by  the  partners  of 
the  bank  who,  except  only  in  the  case  of  the  Bank  of  Scotland  and 
the  two  chartered  banks,  are  bound  jointly  and  severally;  and  on 
the  other  hand,   enabling  the   bank  management  to  ascertain  the 
amount  of  real  property  owned  by  persons  applying  for  loans.     The 
second  consideration  is  the  fewness  6f  the  Scotch  banks  and  their 
great  individual  strength.     In  1873  there  were  but  eleven  banks, 
with  eight  hundred  and  one  branches.     By  the  evidence  before  the 
Committee  of  1841  it  appeared  that  one  bank  in  Scotland  had  20,000 
depositors.     Perhaps  quite  as  important  to  be  remembered  in  this 
connection  as  either  of  the  above  considerations,  is  the  shrewd  Scot- 
tish sense  and  the  strong  Scottish  will. 

2  Tracts,  etc.,  p.  114,  cf.  pp.  Ill,  274. 

3  The  Bank  of  France  was  established  in  1800.     Previously  to  1848 
the  Bank  had  sustained  competition  in  issues  from  joint-stock  banks 
in  the  large  cities ;  but  in  that  year,  these  became,  by  force  of  law, 
branches  of  the  Bank  of  France.     Thus  the  Revolution-  brought  about 


512  MONEY. 

redoubtable  champion  of  restricted  issues  is  compelled 
to  concede  a  quality  as  stable  as  belongs  to  metallic 
money.  "Probably,"  he  wrote  in  1840,  "the  circulation 
of  that  country  undergoes  no  fluctuations  but  such  as 
would  occur  with  a  circulation  exclusively  metallic."1 
We  have  seen  with  what  caution  and  firmness  the  Bank 
has  on  two  occasions  maintained  the  currency  of  its 
notes,  even  in  a  state  of  suspension.  Mr.  Seyd  makes 
the  statement,  as  quoted  by  Mr.  Nicholson,  that  on  a 
mass  of  commercial  paper  held  by  the  Bank  of  France 
between  Aug.  13,  1870,  and  July  6,  1872",  amounting  to 
868,000,000  francs,  there  had  been  a  loss  of  but  one- 
third  per  cent.  Financial  abilities  such  as  are  indicated 
by  a  result  like  this,  and  a  circulation  "saturated  with 
specie,"2  have  combined  to  secure  the  close  approach, 
if  not  the  exact  conformity,  of  the  paper  money  to  the 
movements  of  coin  and  bullion  under  the  operation  of 
supply  and  demand,  in  spite  of  the  fact,  which  accord- 
ing to  the  views  of  the  Currency  School  would  seem  to 
render  such  an  achievement  impracticable,  that  the 
Bank  considers  good  mercantile  bills  a  sufficient  basis 
for  the  issue  of  notes. 

Mr.  Bagehot,  in  his  work,  "Lombard  Street,"  calls 
our  attention  to  the  fact  that,  while  the  law  con- 
templates a  branch  of  the  Bank  of  France  in  each 

the  centralization  of  the  banking  system  in  France,  as  the  Civil  War 
did  in  the  United  States.  M.  Courcelle-Seneuil  says :  "  La  banque 
de  France  n'est  pas  un  etablissement  commercial  seulement;  c'est 
aussi,  et  avait  tout,  un  instrument  politique,  une  banque  d'Etat." — 
[Op.  de  Banque,  p.  212.] 

1  Ibid.,  p.  206. 

2  Down  to  1848,  the  Bank  of  France  issued  no  notes  of  less  than 
500  francs  ($100).     In  that  year  issues  of  200  and  100  franc  notes 
were  authorized. 


SWEDISH  PAPER-MONEY  BANKING.  513 

department,  branches  in  fact  exist  in  only  sixty  out 
of  eighty-six  departments,  so  slowly  does  the  bank- 
ing system  make  its  way  in  that  country.  This  is 
the  more  noticeable  because  in  the  French  colonies 
banks  of  issue  have  acquired  no  small  importance,  pros- 
perous institutions  existing  in  Martinique,  Guadaloupe. 
Keunion,  Guiana,  and  Senegal,  while  within  two  or  three 
years  a  bank  of  issue  has  been  created  at  Noumea  in 
New  Caledonia. 

We  have  said  that  the  issue  of  convertible  notes  was 
first  undertaken  in  Sweden,  nearly  forty  years  before  the 
Bank  of  England  was  established.  Mr.  Palgrave,  in  his 
interesting  "  Notes  on  Banking,"  seems  disposed  to  place 
Swedish  paper  money  first  in  point  of  merit  as  well  as 
of  time.1  By  the  Act  of  1874  the  power  of  paying  bank- 
notes with  other  paper  was  taken  away.  Even  the  notes 
of  the  Bank  of  Sweden  do  not  satisfy  the  demand  for 
redemption.  Notes  when  presented  at  the  head  office 
of  an  issuing  bank  must  be  paid  unconditionally  with 
the  lawful  gold  coin  of  the  realm. 

Sound  banking  principles  have  long  been  traditional 
in  Holland,  and  the  Bank  of  the  Netherlands  maintains 
a  reputation  hardly  second  to  any.  Its  management  is 
notable  for  the  large  specie  reserves,  which  are  said  to 
be  greater  proportionately  than  those  of  any  other 
bank  in  Europe. 

1  "  If  we  except  Italy,  where  for  two  or  three  years  past  the  sys- 
tem of  monthly  bank  statements  has  been  carried  out,  there  is  not  in 
Europe  any  pountry  whose  bank  statistics  are  more  carefully  com- 
piled, or  more  general,  than  Sweden." — [N.  Y»  Banker's  Magazine, 
February,  1877.]  The  excellence  of  the  Italian  accounts  is  due  to 
the  eminent  abilities  of  Prof.  Louis  Bodio,  the  chief  of  the  Central 
Statistical  Bureau  of  the  kingdom,  whose  contributions  to  economical 
and  political  science  have  been  many  and  great. 

43* 


514  .MONEY. 

Prior   to    the  unification  of   Germany   nearly   every 
State   possessed   a  system  of  paper-money  banks,   all 
of  one  general  type,  though  with  varying  provisions  for 
the  security  of  the  shareholder,  the  depositor,  and  the 
note-holder.      Thus,  while  in  Bavaria  a  specie  reserve 
of    only   one-fourth   the   circulation   was   required,    in 
Leipsic  the  reserve  was  two-thirds.      The  more  usual 
proportion  of  specie  required  by  law,  or  established  by 
banking  tradition,  was  one-third.      Of  all  the  German 
banks  the  Eoyal  Bank  of  Prussia,  with  its  numerous 
branches  in  the  commercial  cities  of  the  kingdom,  was 
the  most  important.      Both  the  proper  operations  of 
banking  and  the  issue  of  notes  for  circulation  were  habit- 
ually conducted  by  the  banks  of  Germany  with  great  care 
and  good  judgment.     Since  the  French  war  a  new  bank 
law  has  been  promulgated.    The  most  important  feature 
is  the  creation  of  a  Central  Bank  of  Issue  for  the  empire. 
Of  the  scheme  of  the  new  bank,  the  "Economist"  re- 
marks: "It  looks  as  if  its  framers  had  consulted  the 
books  of  all  the  principal  schools  of  banking  and  curren- 
cy, had  seen  what  they  recommended  to  make  banking 
safe,  and  had  taken  something  from  each."   The  principle 
of  limiting  the  "uncovered  circulation,"  borrowed  from 
the  English  Bank  Act  of  1844,  appears  in  the  Bank  Act 
of  Germany,  the  Bank  being  authorized  to  issue  only 
250,000,000  marks1  beyond  the  coin  held  for  redemption ; 
but  this  check  upon  issues  is  greatly  impaired  by  a  pro- 
vision that  issues  above  the  maximum  may  be  made  by 
the  Management  under  the  penalty  of  a  tax  of  five  per 
cent,  on  all  such  excess.2    The  principle  of  the  separa- 

1  The  other  banks,  thirty-two  in  number,  coming  under  the  New 
Banking  Law,  are  allowed  an  uncovered  circulation  of  135,000,000 
marks. 

2  Of  the  liberty  of  increasing  the  issues  under  a  tax  of  5  per  cent., 
an  arrangement  which  Prof.  Jevons  terms  the  "  Elastic  Limit  Svs- 


GERMAN  PAPER-MONEY  BANKING.  515 

tion  of  the  departments  of  banking  and  issue,  which,  we 
have  seen,  was  held  to  be  of  vital  importance  in  the  En- 
glish Act,  is  not  adopted  in  the  German  law.  Upon  this 
failure  to  take  the  one  principle  of  the  English  Act  with 
the  other,  the  "Economist"  comments:  "First,  there 
are  no  special  securities  and  bullion  set  apart  on  which 
the  notes  are  issued.  There  is  no  ground  for  saying 
that  the  convertibility  of  the  note  is  in  any.  special  way 
maintained;  the  note-holder  and  the  depositor  are  on  a 
par.  Secondly,  what  strikes  even  deeper  at  the  princi- 
ple of  the  Act  of  1844  according  to  its  original  idea,  a 
decrease  in  the  amount  of  coin  and  bullion,  is  not  neces- 
sarily followed  by  a  decrease  in  the  note  circulation. 
The  first  principle  of  the  Peelite  legislation,  that  a  com- 
bined currency  of  the  precious  metals  and  notes  should 
fluctuate  as  if  it  had  been  exclusively  metallic,  is  not 
complied  with." 

The  new  Imperial  Bank  is  to  be  in  the  highest  sense 
a  government  institution.  The  shareholders  neither 
reign  nor  govern ;  they  have  neither  the  form  nor  the 
essence  of  power.  Respecting  this  great  fiscal  and  po- 
litical agent,  the  article  we  have  already  quoted,  from 
the  pen  of  one  of  the  first  of  recent  authorities  on  bank- 
ing, the  late  Mr.  Bagehot,  makes  the  following  suggest- 
ive remarks :  "In  any  other  country  such  a  bank  would 
be  the  most  dangerous  of  all  institutions.  The  govern- 
ment would  be  a  bad  banker,  and  would  be  a  worse 

tern  "  of  circulation,  that  author  says :  "  This  provision  is  designed  to 
avoid  the  suspension  of  the  law  during  times  of  crisis,  and  it  is  quite 
possible  that  we  might  with  advantage  introduce  a  similar  modifica- 
tion into  our  own  currency  law.  But  the  fine,  or  tax,  upon  the  ex- 
cessive issue  ought  surely  to  be  much  more  than  5  per  cent.,  and  in 
this  country  should  not  be  less  than  10  per  cent." — [Money  and  the 
Mechanism  of  Exchange,  p.  319.] 


516  MONEY. 

government  because  it  was  a  banker ;  it  would  waste  the 
money  of  its  subjects,  and  waste  it  in  ways  which  in- 
jured them.  And  how  such  an  engine  may  be  worked 
in  Germany  during  a  time  of  civil  trouble  no  one  can 
foresee;  but  at  present  we  believe  it  will  work  very 
well."  After  referring  to  the  highly  successful  manage- 
ment of  the  Bank  of  Prussia,  which  is  absorbed  into 
the  new  Bar^k,  Mr.  Bagehot  continues:  "We  believe 
that  the  new  Bank  will  carry  on  its  business  in  the 
same  cautious  way,  because  its  managers  will  be  much 
the  same  men  and  guided  by  the  same  motives.  The 
Bank  will  be  safe — not  because  its  constitution  has  re- 
semblances to  that  prescribed  to  the  Bank  of  England  by 
the  Act  of  1844,  for  those  resemblances  are  unreal ;  nor 
because  it  contains  a  theoretical  provision  for  the  bene- 
fit of  note-holders,  for  that  provision  could  not  be 
worked  for  their  benefit  and  might  hamper  the  Bank; 
nor  because  its  business  is  cramped  by  stiff  and  foolish 
rules.1  It  will  be  safe,  if  it  is  safe,  because  it  is,  in  the 
last  resort,  ruled  by  a  most  cautious  and  able  adminis- 
tration, which  will  heed  everything,  which  will  waste  and 
venture  nothing,  and  which,  above  all  things,  will  keep 
an  immense  sum  of  actual  cash  in  store,2  in  readiness 
for,,  and  as  a  security  against,  trouble.  And  this  is  a 
most  characteristic  example  of  many  cases  in  which, 
under  a  most  pedantic  exterior,  the  German  mind  con- 
ceals a  most  simple,  rude  and  tremendous  essence." 

*l  Such  as  requiring  three  signatures  to  all  bills  discounted,  etc. 
2  The  Bank  of  Prussia,  at  the  last  return  quoted  by  this  writer, 
held  72  per  cent,  in  specie  upon  all  its  deposits  and  circulation. 


CHAPTER  XXH. 

THE  THEOKY  OF  CONYEKTIBLE  PAPER  MONEY,  CONCLUDED. 

THE  account  given  in  the  preceding  chapter  will  per- 
haps allow  us  with  advantage  to  recur  for  a  moment  to 
the  theory  of  Convertible  Paper  Money  as  presented  in 
Chapter  XIX. 

The  question  of  supreme  importance  in  this  branch 
of  our  subject  respects  the  Reflux.  Is  the  check  on  over- 
issue sufficient,  under  good  legal  regulation  and  with 
good  banking  administration,  to  keep  such  a  money 
strictly  within  the  bounds  of  metallic  money? 

We  saw  in  the  United  States  a  paper  money,  nomi- 
nally convertible,  at  times  seemingly  in  great  excess,  and 
again  brought  by  a  rapid  contraction  under  the  influ- 
ence of  panic  to  a  point  which  we  must  believe  to  have 
been  below  the  amount  of  specie  which  would  have  cir- 
culated had  it  not  been  replaced  by  cheaper  money. 
Yet,  notwithstanding  the  apparent  excess  of  paper  in 
the  periods  of  relative  inflation,  we  do  not  find  that  a 
premium  on  gold  habitually  existed,  or  was  recognized 
in  the  quotations  of  the  market.  In  small  amounts,  for 
exceptional  purposes,  gold  could  almost  always  be  had 
for  notes  at  par. 

Now  if  these  two  facts  did  really  co-exist  as  appeared, 
the  doctrine  of'  Lord  Overstone  and  Mr.  Norman  found 
44 


518  MONEY. 

here  a  practical  illustration.  The  whole  mass  of  the 
money  of  the  country,  specie  and. paper  together,  was 
depreciated. 

How  could  this  be  ?  Why  did  not  gold,  if  it  was  de- 
preciated in  comparison  with  the  mass  of  commodities, 
go  abroad  where  it  had  a  greater  purchasing  power? 
This  is  the  question  with  which  the  advocates  of  the 
Banking  Principle  assume  to  close  the  discussion. 

An  answer  covering  a  part  of  the  ground  of  the  objec- 
tion has  already  been  offered.  If,  as  the  accounts  given 
by  Prof.  Cairnes  and  others  of  the  movement  of  the  gold 
supplies  make  it  appear,  gold  may  from  its  own  excess 
reach  a  local  value  distinctly  below  that  which  it  has 
elsewhere,  and  may  maintain  this  value  through  consid- 
erable intervals,  it  certainly  may  be  true  that  gold, 
reaching  a  lower  local  value  through  excess  of  paper, 
may  remain  under  depreciation  for  a  period  sufficient  to 
allow  no  slight  effects  to  be  wrought  on  industry  and 
trade  through  the  enhancement  of  prices  operating,  as 
every  such  cause  does,  very  irregularly  upon  the  mass  of 
commodities  in  the  market  and  upon  the  wages  of  dif- 
ferent kinds  of  labor,  and  also  through  the  incentive 
given  to  speculative  investments  depleting  the  capital 
requisite  for  current  production  in  favor  of  a  thousand 
wanton  schemes  for  great  and  sudden  gain.1 

1  Mr.  Charles  Francis  Adams,  in  1837,  expressed  the  opinion  "  that 
there  may  be  a  particular  stage  of  currency  not  narrowly  observed 
as  yet,  when,  the  paper  having  increased  very  rapidly,  and  the  gold 
and  silver  not  having  yet  taken  its  direction  into  the  foreign  trade, 
such  an  unusual  quantity  of  the  circulating  medium  may  exist  for  a 
time  as  to  force  up  the  price  of  commodities  and  thus  communicate 
a  prodigious  impulse  to  the  speculating  enterprise  of  a  community." 
— [Reflections  upon  the  present  state  of  the  Currency  in  the  United 
States.] 


EFFECTS  ON  AMERICAN  A  ORICULTURE.        519 

But  another  economical  cause  remains  to  be  adduced, 
which  will  account  for  the  protraction  of  this  lower  local 
value  of  gold  (as  part  of  a  monetary  circulation)  through 
periods  long  enough  to  allow  the  most  serious  mischief 
to  be  wrought. 

We  have  quoted  from  Mr.  Tooke's  pamphlet  of  1826 
the  following  sentence:  "It  not  unfrequently  requires 
an  interval  of  some  length  before  the  commodities  wliicli 
are  interchangeable  with  other  countries  are  affected  by  an 
excess  in  circulation  in  such  a  degree  as  to  produce  the 
effect  of  increased  export."  Let  us  dwell  on  the  words 
which  have  been  emphasized. 

All  the  commodities  produced  in  a  country  are  not 
equally  and  indifferently  the  subjects  of  foreign  trade. 
Every  country  pays  for  its  imports  with  certain  com- 
modities in  preference  to  others.  Of  two  articles  that 
may  be  exported,  a  reduction  of  price  in  one  will  often 
quicken  the  export  far '  more  than  a  proportional  re- 
duction in  the  other ;  while  as  between  two  articles,  one 
of  which  is  habitually  exported  and  the  other  not,  a 
slight  reduction  in  the  former  case  may  prove  sufficient 
to  cause  a  vast  increase  of  shipment,  while  a  large  re- 
duction in  the  latter  case  may  not  start  the  movement 
of  a  pound,  a  bushel,  or  a  yard.  "Currents  of  trade," 
said  Locke,  "like  those  of  waters,  make  themselves 
channels  out  of  which  they  are  as  hard  to  be  diverted 
as  rivers  that  have  worn  themselves  deep  within  their 
banks."  Only  a  great  flood  suffices  to  produce  an  over- 
flow. 

Now,  nature  had  clearly  pointed  out  what  should  be 
the  chief  exports  of  the  "United  States,  in  the  period  to 
which  we  refer,  that  is,  in  what  class  of  commodities, 
predominantly  and  by  preference,  we  should  pay  for  the 
goods  we  purchased,  or  discharge  the  debts  we  had  con- 


520  MONEY. 

tr acted.  These  were  the  products  of  the  field,  the  farm, 
and  the  forest,  in  respect  to  which  the  United  States 
enjoy  advantages  nowhere  equaled.  The  cost  of  pro- 
duction of  these  articles  was  so  low,  owing  to  the  extra- 
ordinary natural  endowments  of  the  country,  that  the 
American  agriculturist,  after  paying  the  cost  of  trans- 
portation to  European  markets,  could  bring  home  as  the 
proceeds  of  his  sales  what  enabled  him  to  live  with  a 
degree  of  comfort  and  enjoyment  known  to  the  manual 
labor  class  of  no  other  people  in  the  world.  A  vast 
volume  of  such  products  have  flowed  from  the  United 
States,  year  by  year,  through  the  whole  history  of  their 
foreign  trade.  These  were  the  natural,  one  might  say 
the  necessary,  exports  of  the  country. 

From  this  condition  of  our  agriculture  it  resulted  that 
corn  and  cotton,  provisions,  lumber  and  naval  stores, 
continually  tended  to  become  the  cheapest  commodities 
which  we  had  to  export.  Gold  might  through  excess 
of  paper  issues  become  cheaper  here  than  abroad ;  but 
the  products  enumerated  were  cheaper  still.  Gold,  of 
course,  would  go  abroad  under  no  other  motive  than  the 
desire  to  make  purchases  or  pay  debts,  but  for  these 
purposes  other  commodities  were  in  a  higher  degree 
available. 

The  effect  of  the  employment  of  such  money  upon  the 
interests  of  the  agricultural  class  may  be  indicated  as 
follows :  The  price  brought  by  that  portion  of  the 
crop  which  was  exported  was,  of  course,  the  price  at 
which  the  whole  crop  was  sold.  But  in  carrying  on 
their  production  and  in  their  domestic  consumption, 
the  agricultural  class  found  themselves  compelled  to 
purchase  the  products  of  other  occupations  and  trades 
which  produced  goods  which  were  to  be  consumed 
wholly  within  the  country,  and  produced  them,  more- 


IS  PAPER  MONEY  CHEAP?  521 

over,  under  protection  from  foreign  competition,  either 
through  a  high  cost  of  transportation,  as  in  the  case  of 
bulky  articles,  or  through  heavy  imposts  laid  for  rev- 
enue or  with  the  avowed  purpose  of  excluding  the  for- 
eign article.  In  the  case  of  such  products  there  was 
clearly  nothing  but  domestic  competition  to  keep  down 
prices ;  and  the  money  of  the  country  having  been,  as 
we  have  assumed,  depreciated  from  excess,  the  prices 
of  these  products  would  stand  at  a  higher  level,  rela- 
tively to  cost  of  production,  than  the  prices  of  the 
products  first  enumerated.  If  the  situation  has  been 
correctly  given,  there  has  been  throughout  our  history 
a  tendency  to  deplete  the  agricultural  classes  and  all 
engaged  in  producing  exportable  articles,  for  the  benefit 
of  the  classes  which  were  engaged  in  producing  articles 
to  be  consumed  at  home  under  conventional  or  natural 
protection ;  and  the  prime  agent  in  this  operation  has 
been  our  bank  paper  money. 

Such  was  the  theory  of  the  case  advanced  by  Prof. 
Amasa  Walker,  and  it  seems  to  me  to  account  for  the 
existence  of  the  depreciation  which  he  alleges  occurred 
at  intervals  in  the  money  of  the  country,  while  yet  no 
premium  on  gold  appeared.  What,  but  for  the  condi- 
tion of  things  recited,  would  have  been  the  premium  on 
gold,  was  levied  as  a  tax  on  the  agricultural  interest. 
Their  products  were  made  cheaper  than  gold  or  silver, 
and  thus  became  the  preferred  exports  of  the  country, 
while  other  trades  and  occupations  sold  their  goods 
within  the  country  at  prices  which  were  advanced  by 
the  excess  and  consequent  depreciation  of  the  local 
money. 

DOES  IT  "PAY"? 

Rejecting  the  plea  that  elasticity  is  a  desirable  ele- 
ment in  money,  we  have  seen  that  two  advantages  are 


522  MONEY, 

claimed  for  convertible  paper :  one,  its  higher  conven- 
ience in  use,  owing  to  the  great  weight  of  the  masses  of 
metallic  money,  even  of  gold,  required  in  the  larger 
transactions  of  commerce,  which,  were  the  metal  to  be 
actually  employed,  would  cause  difficulty  in  transport- 
ing, handling,  and  counting  money,  besides  inviting  by 
so  open  a  display  of  treasure  to  crimes  of  violence  ;  the 
second  advantage  claimed  for  such  money  being  its 
comparative  cheapness,  a  portion  only  of  the  gold  or 
silver  which  would  form  the  metallic  money  of  a  coun- 
try being  retained  as  the  basis  of  paper  issues. 

JThe  first  of  these  advantages  would  clearly  appertain 
equally  to  a  paper  money  like  that  of  Hamburg  and 
Amsterdam  in  former  times,  like  the  rouble  notes  once 
issued  by  the  Commercial  Bank  of  St.  Petersburg,1  and 
like  the  present  coin-certificates  of  the  United  States 
Treasury.  The  only  advantage  remaining,  then,  for  a 
paper  money  issued  in  excess  of  coin  and  bullion  held 
for  redemption,  over  a  paper  money  based  on  the  full 
amount  of  specie  which  it  promises  to  pay,  is  its  com- 
parative cheapness. 

Is  such  a  money  really  cheap?  Does  it  "pay"  to  sub- 
stitute credit  for  value  in  the  circulation? 

I  shall  not  undertake  to  argue  that  a  money  of  bank 
paper  only  nominally  convertible,  like  that  of  the  Unit- 
ed States  before  the  Civil  War,  issued  upon  a  minimum 
of  specie  even  after  the  bitter  experiences  of  1837  and 
the  reformatory  legislation  which  followed,  is  not  cheap. 
I  apprehend  that  there  are  few  thoughtful  and  intelli- 
gent Americans  who  will  not  accede  to  this  statement  of 
Prof.  Perry :  "  There  can  be  no  hesitation  in  affirming 

1  In  1840  the  bank  had  outstanding  notes  based,  cent,  per  cent.,  on 
reserves  of  coin  and  bullion,  to  an  amount  not  less  than  114  million 
roubles  or  about  $95,000,000  of  our  money. 


IS  PAPER  MONET  CHEAP?  533 

that  the  expense  of  maintaining  a  gold  and  silver  money 
for  all  the  wants  of  the  whole  country  might  have  been 
met,  many  times  over,  from  the  losses  resulting  from 
this  bank  paper  system." — [Pol.  Econ.,  p.  306.] 

If,  as  may  fairly  be  affirmed,  the  utmost  amount  of 
metallic  money  which  would  have  circulated  in  the 
United  States  between  1816  and  1860  would  not  have 
reached  ten  per  cent,  of  the  aggregate  annual  income  of 
the  country,  a  single  commercial  disaster  checking  pro- 
duction to  the  extent  of  one-third  only,  through  a  period 
of  four  months,  would  involve  a  loss  equal  to  the  cost, 
out  and  out,  once  for  all,  of  a  metallic  monev  sufficient 
for  all  the  wants  of  the  country.  How  often  have  the 
mills  and  furnaces  and  factories  of  the  United  States 
been  on  three-quarters,  two-thirds,  one-half  time,  and 
that,  not  through  months,  but  through  years !  Bad 
money  has  not  done  all  the  mischief,  but  it  has  done 
enough  completely  to  justify  Prof.  Perry's  assertion. 

But  turning  from  the  United  States,  where  value  and 
credit  were  so  compounded  in  the  circulation  that  the 
mixture  became,  like  Lady  Smart's  ale,  "strong  of  the 
water,"  only,  let  us  ask  whether  there  is  true  economy 
in  the  substitution  of  credit  for  value  in  the  money  of  a 
country  where  sound  banking  principles  are  observed, 
where  the  banks  frequently  exchange  their  paper  and 
ample  reserves  are  maintained  to  secure  the  redemption 
of  notes  on  demand  by  a  public  which  is  not  intimidated 
by  mob-violence,  by  public  sentiment,  or  by  bank  perse- 
cution. 

M.  Wolowski  estimates1  the  saving  by  the  use   of 

1  La  Question  des  Banques,  p.  155.  Mr.  Hankey  computes  the 
gain  by  the  issue  of  bank-notes  by  the  Bank  of  England  to  be :  To 
the  Government,  £200,000  nearly ;  to  the  Bank,  somewhat  less  than 
£100,000.— [On  Banking,  pp.  4,  9.] 


MONEY. 

credit  as  an  element  of  money  in  Great  Britain  and  Ire- 
land at  -3^0"  of  the  capital,  and  joVo  of  the  revenue  of 
the  United  Kingdom.  If,  however,  purely  banking 
principles  were  to  prevail  as  to  the  volume  of  re- 
serves,1 with  the  issue  of  XI  and  <£2  notes  as  recom- 
mended by  Mr.  Wilson  and  Prof.  Price,  the  saving  could 
undoubtedly  be  made  twice  or  three  times  as  great,  with- 
out involving  any  sensible  increase  of  risk  to  the  note- 
holders of  the  kingdom.  Would  this  be  true  economy  ? 
Of  course,  if  the  reader  is  prepared  to  accept  the  prop- 
osition of  the  economists  of  the  Banking  School,  so  ably 
maintained  by  Messrs.  Tooke  and  Wilson,  that  Convert- 
ible Paper  Money  cannot  appreciably  vary  from  the 
course  of  a  metallic  money  of  full  value,  he  must  regard 
such  a  saving  in  its  first  cost  as  an  object  of  great  im- 
portance, which  it  would  be  inexcusable  to  neglect.  If 
money  is  merely  a  tool  of  trade,  it  should  be  made  no 
more  expensive  than  is  required  for  its  highest  efficiency. 
On  the  assumptions  of  the  Banking  School,  a  paper  mon- 
ey secured  by  a  reserve  of  coin  and  bullion  to  the  full 
value  of  the  circulation  would  be  as  wasteful  as  ivory- 
handled  forks  in  a  hay  field,  or  nickel-plated  spades  in 
a  railway  cut. 

But  if,  on  the  other  hand,  there  is  reason  to  believe 
that  a  paper  issued  above  the  amount  of  specie  held  for 
redemption,  however  carefully  managed,  tends  to  excess 
in  greater  or  less  degree,  we  must,  I  think,  conclude 
that  there  is  no  true  economy  in  effecting  such  a  saving 
in  the  first-cost  of  the  circulating  medium.  No  money 

1  Prof.  Price  mourns  over  the  large  reserves  of  the  Bank  of  En- 
gland under  the  Act  of  1844.  He  holds  the  circulation  to  be 
"  needlessly  and  excessively,  and  therefore  wastefully,  secured." — 
[Principles  of  Currency,  p.  143,  cf.  pp.  190,  193,  201.] 


THE  BEST  MONET  IS  THE  CHEAPEST.  525 

is  cheap  which  does  not  perfectly  answer  its  purpose,1 
for  money,  as  M.  Wolowski  has  said,  is  of  all  societary 
institutions  that  which  accomplishes  its  work  at  the 
least  relative  expense.2 

Perhaps  the  best  illustration  we  could  offer  on  this 
point  is  one  taken  from  the  foundation  of  a  large  build- 
ing, say  a  cotton  factory.  The  builder  opens  the  ground 
and  digs  till  he  gets  below  the  reach  of  frost,  perhaps 
till  he  comes  to  solid  rock.  He  puts  in  stone  and  ma- 
son-work at  the  cost  of  thousands  of  dollars,  which  will 
form  no  occupied  part  of  the  structure,  will  furnish  no 
room  for  spindles  or  for  storage.  The  system  of  paper- 
money  banking  in  the  United  States  attempted  the  same 
kind  of  economy  as  if  the  builder  of  the  cotton  factory 
should  lay  its  foundations  so  grudgingly  that  it  would 
from  time  to  time  settle  downwards,  causing  wide  seams 
to  appear  in  the  upper  stories,  exciting  alarm  in  the 
minds  of  employer  and  workmen,  involving  costly  out- 
lays for  shoring  up  walls,  bracing  floors  and  putting  in 
new  partial  foundations  at  great  disadvantage,  with  the 
result,  at  the  best,  of  a  weak,  shaky  structure,  liable  at 
any  time,  and  certain  at  some  time,  to  come  down  in 
ruins. 

1  u  To  dispense  with  barns  would  be  a  greater  annual  saving  than 
that  which  arises  from  the  substitution  of  a  paper  to  a  metallic  cur- 
rency.    Some  favorable  seasons  occur  when  the  farmer  might  thresh 
his  wheat  on  a  temporary  floor  exposed  to  the  weather,  and  dispense 
with  a  barn.      Yet,  in  our  climate,  every  prudent  farmer  prefers 
security  to  a  precarious  advantage,  and  would  consider  it  a  most 
wretched  economy  not  to  incur  the  expense  necessary  for  that  object. 
Similar  is  the  economy  of  that  expensive  instrument,  the  precious 
metals,  if   the   substituted  paper  currency  is  insecure." — [Q-allatm, 
Considerations,  etc.,  p.  20.] 

2  "Aucune  invention  humaine  n'est  plus  utile  que  la  monnaie; 
aucune  institution  sociale  n'impose  moins  de  depense." — [Journal  des 
Economistes,  October,  1868.] 


526  MONEY. 

Such  folly  as  this  the  writers  whose  views  we  are  con- 
sidering would  denounce  as  earnestly  as  the  most  stren- 
uous Bullionist.  But  they  still  insist  that  the  founda- 
tion may  be  reduced  greatly  in  its  extent  and  in  the 
quality  of  the  material  used,  not  only  without  bringing 
the  factory  down  in  a  heap,  but  without  showing  a  crack 
from  cellar  to  garret.  All  this  might  be  while  yet  with 
such  a  foundation  the  factory  would  shake  under  the 
tread  of  a  thousand  feet  and  the  pulsations  of  its  pow- 
erful engines  sufficiently  to  cause  a  great  loss  of  power, 
great  waste  of  stock,  and  to  interfere  largely  with  the 
uniformity  of  the  product,  on  which  depends  much  of 
its  commercial  value. 

So  is  it,  I  am  disposed  to  believe,  with  credit  intro- 
duced into  the  money  of  a  country.  It  may  cause  no 
catastrophe,  may  threaten  no  disaster,  while  yet  it  may 
jar  the  whole,  structure  of  industry  and  trade,  and  cause 
the  machinery  of  production  and  exchange  to  operate 
with  less  of  precision  and  force  than  would  otherwise 
be  the  case. 

The  great  fact  of  modern  industry,  under  the  wide  di- 
versification of  production,  the  localization  of  trades 
and  the  minute  subdivision  of  labor,  is  waste  of  indus- 
trial power  through  the  tendency  to  a  divergence  of  de- 
mand and  supply,  leading  now  to  an  overproduction 
which  is  never  fully  utilized ;  now  to  a  cessation  of  in- 
dustry which  is  carried  by  the  timidity  of  merchants, 
manufacturers,  and  bankers  far  beyond  what  is  necessary 
to  equalize  production  and  clear  the  market.  Oscilla- 
tions in  demand  and  supply  are  indeed  inevitable  in 
the  nature  of  things ;  but  our  modern  system,  by  which 
two  or  three  towns  make  half  the  goods  of  a  certain  sort 
which  the  whole  world  consumes,  extends  these  oscilla- 
tions into  wide-reaching  fluctuations,  which  in  the  ag- 


THE  BEST  MONEY  IS  THE  CHEAPEST.  527 

gregate  largely  reduce  production  from  its  economical 
maximum,  and  render  the  employment  of  labor  irregu- 
lar and  precarious.  This  tendency  must,  as  it  appears 
to  me,  be  in  a  greater  or  less  degree,  but  always  with ; 
unfortunate  results,  aggravated  by  the  issue  of  paper 
money  not  based,  cent,  per  cent.,  on  the  money  of  inter- 
national commerce. 

But  it  is  difficult  for  one  to  contemplate  such  stores  of 
gold  and  silver  as  would  be  required  for  the  basis  of  a 
paper  circulation  into  which  no  proportion  of  credit 
should  enter,  without  feeling  that  here  is  waste.  Prof. 
Price  looks  down  into  the  cellars  of  the  Bank  of  En- 
gland, where  lie  X20,000,000  of  gold,  and  exclaims  :  "A 
spot  more  identical  with  the  deep  Australian  mine  can- 
not well  be  imagined." 1  Identical !  No  two  places  on 
earth  have  so  little  in  common,  and  the  difference  be- 
tween them  is  all  the  more  striking  because  of  the  pres- 
ence of  the  same  metal  in  both.  In  the  Australian  mine 
the  gold  has  no  value :  it  will  not  answer  one  human 
use ;  it  is  not  available  to  purchase  a  single  commodity 
or  pay  the  smallest  debt.  In  the  vault  of  the  Bank  of 
England  the  gold  has  an  immediate  value ;  it  embodies 
a  vast  amount  of  labor  expended  in  raising  it  from  the 
mine,  in  reducing  it  to  a  state  of  commercial  purity  and 
in  bringing  it  half  around  the  world ;  it  will  command 
in  exchange  the  most  precious  products  of  English  la- 
bor; it  is  ready  to  be  shipped  east  or  west,  north  or 
south,  to  purchase  the  teas  of  China,  the  grain  of  Amer- 
ica, the  furs  of  Siberia,  or  the  spices  of  the  Indian  Ocean. 

But,  says  the  same  writer,  in  speaking  of  the  with- 
drawal of  gold  from  the  Bank,  "it  is  the  idle,  the  unused, 

1  Principles  of  Currency,  p.  193 :  "  Transferred  from  a  mine  to  a 
cellar." — [P.  201.]  Prof.  Price  frequently  brings  up  the  same  image. 


528  MONEY. 

the  temporarily-annihilated  resources,  slumbering  in  the 
cellar,  which  are  lessened." — [P.  219.]  Is  the  gold  in  the 
vault  idle,  unused,  temporarily  annihilated?  Is  the 
bridge  which  bears  up  the  train  of  freight  or  passengers 
less  busy  than  the  snorting,  puffing  engine  which  draws 
the  cars?  Are  blocks  of  stone  unused  when  laid  deep 
under  ground  in  the  foundation  of  a  building  which 
serves  the  purposes  of  industry,  of  art,  or  of  govern- 
ment? Surely  there  is  lack  of  scientific  imagination 
in  that  view  of  the  gold  in  the  vaults  of  the  Bank  which 
regards  it  as  idle  and  unused,  when  its  true  and  faithful 
symbols  are  running  their  busy  course  above  ground 
and  outside  the  walls,  effecting  the  daily  exchanges  of 
thirty  millions  of  people  ! 


INDEX. 


ABRASION  of  coin  in  use,  121-2, 
chap.  xi.  passim. 

Abyssinians  use  rock  salt  as  mo- 
ney, 164-5. 

Account,  money  of,  294-6. 

Adams,  Charles  Francis,  Reflec- 
tions on  the  Currency,  efforts  of 
bankers  to  push  out  their  notes, 
489?i ;  inflation  of  convertible 
paper  money  is  possible,  519ft. 

Adscripts  Metallis,  effects  of  serf- 
dom upon  mining  populations, 
126-7. 

Africa,  its  yield  of  the  precious 
metals,  100-1  ;  comparatively 
low  value  of  gold,  122-3. 

Afghanistan,  its  yield  of  the  pre- 
cious metals,  101. 

Agatharchidas,  silver  once  more 
valuable  in  Arabia  than  gold, 
123,  230. 

Agriculture,  payment  of  wages  in 
kind,  200 ;  effects  of  bad  money 
on  the  agricultural  class  of  the 
United  States,  519-21. 

Alexander,  spoil  taken  in  Persia, 
109. 

Alison,  Sir  Arch.,  History  of  Eu- 
rope, argument  in  favor  of  an 
increase  of  the  money  supply, 
81-3,  129  ;  necessity  of  suspen- 
sion, 1797-1815,  349-50. 

Alley,  J.  B.  [U.  S.  House  Reps.l, 
on  the  Legal  Tender  Bill, 
381/&. 

Alloys  in  coinage,  effect  of  differ- 
ent alloys,  121-2 ;  silver  not 
used  as  alloy  by  the  ancients, 
121  ;  purity  of  ancient  coins, 
174-5  ;  the  rule  of  -fe  vs.  the 
rule  of  -,Ar,  175-6 ;  value  of  al- 
loy never  computed,  177. 

America,  discovery  of,  leading  to 
revival  of  industry,  81  ;  effects 

23 


of  Spanish  American  revolu- 
tions in  checking  money  supply, 
82,  139-40 ;  production  of  gold 
and  silver,  1492-1848,  chap.  vii. ; 
effects  on  Europe,  135-7;  the 
Calif ornian  episode,  chap.  viii. ; 
effect  on  the  silver  price  of 
gold,  233-8  ;  paper  money  of 
the  colonial  and  revolutionary 
periods,  chap,  xv.,  p.  491. 

Amsterdam,  Bank  of,  its  origin, 
463  ;  its  note  issues,  522. 

Animal  products,  their  prices  rise 
higher  than  those  of  vegeta- 
ble products  under  increase  of 
money,  155. 

Arabia,  no  mines  of  the  precious 
metals,  101. 

Arbitration  of  exchanges,  459. 

Argentine  Republic,  paper  money, 
S09». 

Aristotle,  Nichomachian  Ethics, 
money  as  a  pledge,  26  ;  objec- 
tion to  usury,  96. 

Arnold,  Abbot  of  Lubec,  the 
ransom  of  Richard  I.,  of  Eng- 
land, obtained  by  melting 
church  vessels,  118-19. 

Arts,  the,  consumption  of  the 
precious  metals,  117-20,  140-1, 
146-7. 

Ashburton,  Lord,  advocates  the 
so-called  Double  Standard,  228ft. 

Asia,  its  yield  of  the  precious 
metals,  101-2 ;  comparatively 
low  value  of  gold,  silver  im- 
ported from  Europe,  122-3, 141- 

Assignats,  the,  336-44. 

Attwood,  Matthias,  the  leader 
of  the  "  Birmingham  School," 
84  ;  the  law  of  the  depreciation 
of  inconvertible  paper  money, 


530 


INDEX. 


Attwood,  Thomas,  "  The  Scotch 
Banker,"  362n. 

Augustus,  the  accumulation  of 
treasure  in  his  reign,  121,  124-5. 

Australia,  gold  discoveries,  144; 
effects  on  society  and  industry, 
83 ;  Sydney  sovereigns  contain 
a  large  proportion  of  silver,  178; 
effect  of  discoveries  on  gold 
price  of  silver,  233-7. 

Austria,  its  yield  of  the  precious 
metals,  106,  140  ;  relation  of 
gold  and  silver  in  the  coinage, 
238  ;  paper  money,  368-9. 

Babbage,  Charles,  The  Economy 
of  Manufactures,  platinum  un- 
suited  for  coinage,  167-8;  con- 
ditions of  effectual  competition, 
477-8. 

Bagehot,  Walter,  The  Economist, 
demonetization  of  silver,  266-7  ; 
success  of  French  banking,  366; 
criticism  of  "the  Imperial  Ger- 
man bank,  514-17 ;  Lombard  St. , 
the  controversy  over  the  Act  of 
1844, 462;  effects  upon  Exchange 
of  depreciated  paper  money, 
383,  463-4;  the  management 
of  a  panic  is  a  mercantile  prob- 
lem, 472 ;  power  of  the  Bank 
of  England  over  the  rate  of  in- 
terest, 478 ;  slow  extension  of 
banking  in  France,  512-13. 

Bancroft,  George,  History  of  the 
United  States,  the  money  of 
the  early  colonists,  306. 

Bamberger,  L.,  the  Latin  mone- 
tary union,  243 n. 

"  Banking  Principle,"  The,  421, 
chap.  xix.  passim,  452-4,  chap, 
xxii.  passim. 

"  Bank,"  the  word  in  early  New 
England  meant  a  batch  of  paper 
money,  317,  503. 

Banks,  Prof.  Price's  definition  of 
a  bank  criticised,  68  ;  by  allow- 
ing the  mutual  cancellation  of 
debts  banks  save  the  use  of 
money,  68-9 ;  competition  in 
issues  between  banks  tends  to 
produce  inflation,  436-9 ;  no 
necessary  connection  between 
banking  and  note  issue,  445-6  ; 
the  union  held  by  the  advo- 
cates of  the  "  Currency  Princi- 
ple "  to  be  mischievous,  446-7. 


Banks,  in  Northern  Europe  orig- 
inated in  the  corruption  of  the 
coin,  463-4. 

In  the  United  States,  491- 
509  ;  declaring  dividends  while 
insolvent,  493-4 ;  career  be- 
tween 1811  and  1837,  495-563  ; ' 
improvements  in  the  system 
after  1837,  503-6  ;  career  be- 
tween 1844  and  1860,  506-8; 
the  national  banking  system 
adopted  in  the  Civil  War,  its 
characteristics,  507-9. 

Of  Scotland,  509-11  :  Swe- 
den and  Holland,  513  ;  Ger- 
many, 514-16. 

Bank  of  England  under  the  Re- 
striction, 348-61  ;  its  note  is- 
sues, 403 -4?i,  413-4;  theory 
of  the  management  in  1819, 
443,  456-7  ;  in  1832,  444 ;  the 
Act  of  1844,  447-51,  514-17  ; 
operation  of  the  Act..  452-71  ; 
raising  the  rate  of  discount, 
473-5  ;  power  of  the  Bank  over 
the  rate  of  interest,  477-8 ; 
Prof.  Price  considers  its  re- 
serves excessive,  524,  527. 

Of  France,  its  monopoly  of 
issue,  438n  ;  the  suspensions 
of  1848  and  1870,  365-6  ;  suc- 
cess of  its  management,  511-13. 
Of  the  United  States,  The 
First,  491-2,  499 ;  the  Second, 
495-6,  500-1. 

Bank  Notes,  are  they  money  ? 
277,  395-400  ;  a  sort  of  com- 
pulsion to  receive  them,  482-3. 

Baring,  Sir  Francis,  reply  to  Mr. 
Boyd,  352. 

Baring,  Mr.,  specie  circulation 
in  France,  440-1. 

Barbarians,  The,  effect  of  the  in- 
vasions on  the  production  of 
precious  metals  within  the  Em- 
pire, 127-8. 

Barter,  difficulties  of,  1-3 ;  still 
used  to  a  great  extent,  21  ;  may 
be  greatly  increased  by  dis- 
credit of  the  coin,  198-204 ;  or 
of  inconvertible  paper  money, 
279. 

Bastiat,  F. ,  money  witnesses  that 
the  bearer  has  rendered  a  ser- 
vice to  society  for  which  he 
is  entitled  to  an  equivalent, 
20-7 ;  increase  of  money  sup- 


INDEX. 


531 


ply  does  not  enrich  a  commu- 
nity, 77-8. 

Baudeau,  M.,  money  is  an  order 
payable  at  the  will  of  the  bear- 
er, 26. 

Baxter,  Robert,  The  Panic  0/1866: 
fluctuations  in  the  Bank  of 
England  rate  of  discount,  454?i; 
rights  of  issue  should  be  taken 
from  the  Bank,  4P)8ft. 

Beaulieu  de,  Ch.  le, Hardy,  Traite 
Elcmentaire  d' Economic  Poli- 
tique,  danger  of  over-issue  of 
inconvertible  paper  money,  380. 

Belgium,  relation  of  gold  and 
silver  in  the  coinage,  238-40. 

Bengal,  Dr.  Hunter's  account  of 
its  money  and  coin,  169,  211-12, 
220,  294. 

Berkeley,  Bishop,  The  Querist, 
"  ideal "  money,  290/1;  a  nim- 
ble sixpence,  418/z-. 

"Billon,"  or  token-money,  218  ; 
influence  on  the  poorer  classes, 
219-20  ;  on  retail  prices,  22  )-l. 

Bi-metallists,  their  position,  chap, 
xiii.  passim. 

Blanc,  Louis,  the  "  Assignats," 
342,  344^. 

Bodio,  Prof.,  the  bank  statistics 
of  Italy,  513ft. 

Borneo,  its  yield  of  gold,  102. 

Bosanquet,  Charles,  effect  of  laws 
prohibiting  export  of  bullion, 
56ft  ;  cost  of  the  recoinage  of 
169.),  212;  his  bullion  pam- 
phlet, 353. 

Bowen,  Prof.,  American  Political 
Economy,  money  as  a  "  meas- 
ure of  value,"  5,  283. 

Boyd,  Mr.,  his  letter  On  the  Cir- 
culation, 352. 

Brassage,  term  proposed  by  M. 
Chevalier  to  cover  actual  ex- 
penses of  coinage,  186. 

Brazil,  use  of  gold  by  the  na- 
tives, 120  ;  yield  of  gold,  134  ; 
product  falls  off  after  the  mid- 
dle of  the  18th  -century,  140  ; 
circulation  of  English  sove- 
reigns, 185 ;  relation  of  gold 
and  silver  in  the  coinage,  239. 

Bresson,  M.,  Hist.  Financ.  de,  la 
France,  the  "Assignats,"  344- 
5. 

Bronson,  Dr.  H.,  Connecticut  Cur- 
rency, furs  as  money,  33/t ; 


the  money  of  the  early  colo- 
nists, 306-7  ;  the  Connecticut 
paper  issues,  308-16. 

i  Bullion  Report,  The,  301,  353-4, 

396. 

Burke,  Edmund,  Bank  of  Eng- 
land paper  is  of  value  in  com- 
merce, because  in  law  it  is  of 
none,  28ft  ;  over-issues  of  in- 
convertible paper  money,  381- 
2. 

|  Bunnah,  inhabitants  use  lead  as 
money,  37 ;  its  yield  of  the 
precious  metals,  101. 

Cacao,  used  as  money  by  the 
Mexicans,  35. 

Cairnes,  Prof.,  Essays  in  P<>1. 
Economy,  the  influence  of  the 
Mercantile  Theory,  47;  depre- 
cates the  considerable  increase 
of  the  precious  metals,  78-9  ; 
the  new  gold  supplies  proceed 
from  country  to  country  with 
appreciable  intervals,  86  ;  the 
American  discoveries  cause  a 
great  expansion  of  oriental 
trade,  135  ;  produce  pauperism 
in  England,  136ft,  151w  ;  influ- 
ence of  the  California!!  and  Aus- 
tralian discoveries  on  the  con- 
dition of  different  countries  and 
industrial  classes,  234-7  ;  influ- 
ence of  the  interchangeable  use 
of  gold  and  silver  on  the  price 
of  either,  248-9. 

Some  Leading  Principles  of 
Pol.  Economy,  competition  in 
retail  markets,  222. 

Logical  Method  of  Pol.  Econ- 
omy, the  conditions  of  Econo- 
mic Definition,  408-9. 

Calhoun,  J.  C.,  advocates  issue  of 
Treasury  Notes,  495. 

California,  gold  discoveries,  144  ; 
effects  on  industry  and  society, 
83  ;  on  the  gold  price  of  silver, 
233-7. 

Canada,  anomalous  condition  of 
its  money,  239ft. 

Capital,  is  money  capital?  22  3  ; 
a  bank  lends  capital  as  the 
agent  of  the  owners,  68 ; 
amount  of  capital,  relatively  to 
demand,  determines  rate  of  in- 
terest, 94-5 ;  popular  confu- 
sion between  money  and  capi- 


532 


INDEX. 


tal,  95  ;  unduly  rapid  conver- 
sion of  circulating  into  fixed 
capital,  one  of  the  causes  of 
crises,  473-4,  501-2,  519. 

Carey,  H.  C.,  his  argument  for  in- 
crease of  the  money  supply,  84  ; 
for  non-exportable  money,  301. 

"  Cash,"  The,  of  China,  166. 

Cattle,  used  as  money  by  the  an- 
cients, 31-2  ;  will  carry  them- 
selves, 33  ;  are  not  uniform  in 
quality,  33-4  ;  cost  much  to 
keep,  and  are  liable  to  loss  and 
injury,  34;  cannot  be  divided 
without  loss  of  utility,  35. 

Celebes,  its  yield  of  the  precious 
metals,  102. 

Cernuschi,  M.,  Mtcanique  de 
I'Echange,  a  sale  for  money  is 
only  half  a  transaction,  3ft  ; 
"  La  Monnaie  est  le  Men  tvalu- 
ant,"  5n  ;  importance  of  the 
money  function,  16ft  ;  money  is 
sterile,  23ft. 

His  bi-metallic  theory    criti- 
cised by  Hertzka,  259-61,  266ft. 

Ceylon,  its  yield  of  the  precious 
metals,  102. 

Chalmers,  G.,  Considerations,  etc., 

'  recoinage  of  1774,  212  ;  bank- 
ers pushing  out  their  notes, 
488ft. 

"Chao,"  Chinese  paper  money, 
303. 

Cheapness  claimed  for  conver- 
tible paper  money,  409-13  ;  does 


it  pay  ?  521-8. 
eck  s 


Check  system,  reducing  the  de- 
mand for  money,  70  ;  are  checks 
money?  398-9. 

Cherbuliez,  M.,  Science  Econo- 
mique,  money  a  medium  of  ex- 
change, 3  ;  distinction  between 
Price  and  Value,  229ft. 

Chevalier,  M.,  La  Monnaie,  small 
cost  of  rendering  bullion  into 
coin,  and  coin  into  bullion,  41  ; 
exportation  of  money  now  gen- 
erally permitted  by  govern- 
ments, 46ft  ;  the  reduction  of 
debts  by  a  progressive  increase 
of  the  money  supply  is  in  the 
line  of  progress,  94  ;  the  art  of 
mining  lost  in  the  Middle 
Ages,  130ft  ;  value  of  Medina's 
discovery,  133ft  ;  the  Chinese 
"  cash/7  166  ;  platinum  coinage 


of  Russia,  168ft  ;  the  proportion 
of  -nj  alloy  in  the  coinage,  176  ; 
the  Spanish  dollar  a  universal 
coin,  179-80  ft;  corruption  of 
the  coin  of  Spain,  ISQn  ;  effect 
of  seigniorage  on  price,  190 ; 
private  frauds  on  coin,  pecu- 
liarly an  English  offence,  195ft  ; 
future  of  mono  -  metallism, 
241ft  ;  comparative  stability  of 
gold  and  silver,  254ft  ;  money 
a  material  equivalent,  275 ; 
danger  of  over-issue  of  incon- 
vertible paper  money,  378ft ; 
the  word  "currency,"  895ft, 
400ft  ;  distinction  between  mo- 
ney and  bank^  notes,  408ft ; 
approves  of  competition  in  bank 
issues,  438-40;  credit  in  a  panic, 
480ft. 

On  Gold  \Colden' s  Transla- 
tion], 145-51,  234-7;  import- 
ance of  the  money  function, 
14  ;  amount  of  metallic  money 
in  commercial  countries  nearly 
stationary,  71  ;  the  new  gold 
supplies  distributed  "by 
jerks,"  86  ;  estimate  of  produc- 
tion before  1848,  143  ;  effect  of 
American  discoveries  on  rela- 
tion between  gold  and  silver, 
232  ;  the  influence  of  the  inter- 
changeable use  of  the  two  metals 
on  the  price  of  either,  250  ;  the 
future  of  mono -metallism,  256. 

China,  its  yield  of  the  precious 
metals,  101;  its  "cash,"  166; 
extensive  circulation  of  the 
Spanish  dollar,  179-80  ;  paper 
money,  802-3ft. 

Circulating  Capital,  unduly  rapid 
conversion  into  fixed  capital, 
473-4,  501-2,  519. 

Circulation,  in  the  monetary  sense, 
is  a  thing  of  degrees,  400-1. 

Clearing  House,  the  Bankers' 
Bank,  its  agency  in  saving  the 
use  of  money,  69. 

Clipping  the  coin,  194-5,  211-12. 

Cochin  China,  its  yield  of  the  pre- 
cious metals,  101  ;  its  "  cash," 
166  ;  the  "  gall,"  171. 

Cod,  as  money  in  Newfoundland, 
32. 

Coin,  loss  of  metal  by  abrasion, 
121-2  ;  by  clipping  and  sweat- 
ing, 194  5,  211-12. 


INDEX. 


533 


"  Coin  Bank  "  notes  in  California, 
500. 

Coinage,  chap.  x. ;  origin  and  ear- 
ly forms,  104-7  ;  a  prerogative 
of  sovereignty,  168 ;  mechan- 
ical problems,  170 ;  alloys, 
174-8 ;  improvements  in  the  art, 
172  ;  American  coinage,  172  ; 
wide  circulation  of  certain 
coins,  178-80 ;  on  whom  shall 
the  cost  of  coinage  fall  ?  [Seign- 
iorage] 181-6  ;  on  whom  the 
cost  of  recoinage  ?  214-6. 

Coke,  Lord,  metal  not  money 
without  the  stamp,  168. 

Colwell,  Stephen,  Ways  and 
Means  of  Payment,  cancellation 
of  indebtedness,  68. 

Collamore,  Jacob  [U.  S.  Senate], 
opposes  the  issue  of  legal-ten- 
der notes,  372. 

Competition  in  issues  between 
banks,  leading  to  inflation, 
436-9;  in  the  U.  S.,  480-1. 

Congress,  .the  Continental,  issues 
of  paper  money,  300,  326-35, 
371-2. 

Congress  of  the  United  States, 
issues  of  legal  tenders  during 
the  Civil  War,  389-75. 

Conkling,  Roscoe  [U.  S.  Ho. 
Reps.],  opposes  the  issue  of 
legal-tender  notes,  373. 

Connecticut,  Colonial  paper 
money,  308-9,  311-16  ;  revolu- 
tionary issues,  328-9. 

Continental  Currency,  The,  323- 
35. 

Convertible  Paper  Money,  Part 
III. 

Theory,  chap,  xviii. ;  The  Cur- 
rency Principle  vs.  the  Banking 
Principle,  chap.  xix. ;  in  Eng- 
land, chap,  xx.;  in  the  United 
States — other  examples — chap, 
xxi  ;  Theory,  concluded,. chap, 
xxii. 

Convertibility  of  Bank  Notes, 
how  much  is  implied  ?  479-85, 
493-4;  conversion  under  the 
New  York  law  meant  discount, 
505 ;  the  lack  of  convertibility 
in  United  States  paper  money 
479-85,  493-4,  500ft,  517-18. 

Convicts,  employed  in  mines, 
126-7. 

Copernicus,  N.,  Monete  Gudende 


Ratio,  seigniorage,  181ft  ;  bale- 
ful   effects     of    bad    money 


Copper,  as  money,  37-8  ;  coinage 
of  copper  not  covered  by  the 
prerogative  of  the  English 
crown,  168  ;  legal  tender  in 
limited  amount,  218;  discount 
on  copper  coins  in  India,  220/1. 

Coquelin,  M.  ,  approves  competi- 
tion in  bank  issues,  438-9. 

Corn  [Indian],  as  money,  in  Mas- 
sachusetts, 33. 

Corn  Rents,  157-8  ;  "  Bread*  corn 
the  real  and  paramount  stand- 
ard of  value  "  [Homer],  159. 

Corsica  produces  no  gold  or  sil- 
ver, 103. 

Counterfeiting,  of  American  rev- 
olutionary paper  money,  330  ; 
of  French  assignats,  345  ;  of 
small  notes,  442  ;  of  New  Eng- 
land bank  notes,  506ft. 

Courcelle-Seneuil,  M.,  Operations 
de,  Banque,  inconvertible  paper 
money  need  not  depreciate, 
278^  ;  fluctuations  of  such 
money  caused  by  political 
events,  384ft  ;  definition  of 
paper  money,  396ft  ;  convertible 
paper  money  will  operate  pre- 
cisely like  metallic  money, 
423M,  438ft  ;  the  issue  of  bank 
notes  not  a  concern  of  govern- 
ment, 498ft  ;  the  Bank  of  France 
a  government  institution,  512ft. 

Cowries  [shells],  as  money,  25. 

Crawford,  Secretary,  bank  paper 
money  in  the  United  States, 
1811-15,  493,  1815-19,  495  ;  con- 
vertibility in  some  States  not 
even  ostensible,  500ft. 

Credit,  relation  between  long 
credit  and  discredit,  506ft. 

Credit-System,  The,  reduces  the 
use  of  money,  65-9. 

Creditor  class,  how  affected  by 
changes  in  the  money  supply, 
89-94,  136,  267-70,  317-18,  342, 
377. 

Crises,  treatment  of,  see  Panics  ; 
crisis  in  England,  1792-3,  and 
1810-11,  424ft  ;  1818,  358  ;  1825, 
424ft,  433,  473-4  ;  1836-7,  424  ; 
1846-7,  424ft,  466-8,  476  ;  1866, 
474  ;  in  the  United  States,  1814, 
492-5;  1818-19,  495;  1825, 


534 


INDEX. 


495-6;  1837-9,  505-6;  1873, 
375,  474. 

Custom,  in  economics,  protects 
the  weaker,  386-7. 

Currency,  as  a  substitute  for  the 
word  money,  275-6,  395-6. 

"  Currency  Principle,"  The,  421, 
423;?,  452-4,  chap.  xix. ;  pro- 
gress of  this  opinion  up  to  the 
act  of  1844,  443-51. 

Dacia,  working-  of  the  mines  in- 
terrupted by  the  invasion  of  the 
Barbarians  ;  the  slaves  join  the 
invaders,  128. 

Dallas,  Secretary,  state  of  United 
States  bank-paper  money  in 
1814,  494. 

Dates,  as  money  in  Africa,  33. 

Debts,  their  burden  diminished 
by  an  increase  of  the  money 
supply,  88-94,  136  ;  the  relation 
of  the  volume  of  indebtedness 
to  the  question  of  bi-metallic 
money,  263-4,  268-9  ;  effects  of 
resumption,  359-64. 

Definitions,  Economic,  admit  of 
exceptions  [Cairnes],  408-9. 

Denmark,  use  of  gold  in  early 
times  instead  of  iron,  120. 

Denominator  in  Exchange  [com- 
monly called  Measure  of 
Values],  4-9,  64-5, 196,  280-90, 
376-7. 

Deposit  System  [Bank],  reduces 
the  use  of  money,  70. 

Depreciation  of  inconvertible 
paper  money,  how  measured  ? 
360-4,  374,  379-81,  887-91; 
effect  on  Foreign  Exchanges, 
382  ;  involves  fluctuations  of 
value,  383-4 ;  is  depreciation 
of  convertible  paper  money 
possible  ?  429-32,  517-21. 

Deterioration,  liability  to,  a  seri- 
ous objection  in  money,  34-5, 
cf.  chap.  xi. 

Dignity,  National,  Mr.  E.  G. 
Spaulding's  conception  of,  370ft. 

Dillaye,  S.  D.,  review  of  Presi- 
dent White  on  the  paper  money 
of  France,  338,  344ra. 

Discredit  of  the  coin,  198,  204; 
of  inconvertible  paper  money, 
279. 

Distribution  of  Wealth,  how 
affected  by  the  use  of  money, 


20-1 ;  by  the  use  of  bad  money, 
220-1,  384-7,  519-21. 

Distribution,  territorially,  of  the 
precious  metals,  through  the 
agency  of  price  [Ricardo's 
statement],  49-57,  122;  Prof. 
Cairnes's  qualification  of  Ricar- 
do's statement,  150-7  ;  Prof. 
Sumner's  statement,  356-8  ;  re- 
tarded distribution,  388,  390-1. 
518. 

Divisibility,  as  an  element  of 
money,  35-6. 

"Double  Standard"  of  Value. 
The  bi-mctallists  object  to  the 
term,  11  ;  the  question  of  the 
Standard  discussed,  222-71. 

Drake,  Dr.,  Exchequer  bills  in 
the  reign  of  William  III.,  406. 
\  Drummond,  Henry,  Elementally 
Propositions  respecting  the  Cur- 
rency, convertible  paper  money 
may  be  issued  in  excess,  431-2*. 

Duncan,  J.,  On  Currency,  rela- 
tive value  of  silver  and  gold, 
230 ;  advocates  the  use  of  in- 
convertible paper  money,  303  ; 
the  fate  of  John  Law's  bank 
does  not  indicate  inherent  ten- 
dencies of  such  money,  304. 

Dupont  de  Nemours,  Notes  to  Tur- 
got's  Des  Richesses,  the  use  of 
money  favors  small  savings,  18ft. 

Economy  in  the  use  of  money,  69. 

"  Economist,"  The,  73, 147,  266-7, 
366,  514-17. 

"Elasticity"  of  paper  money. 
414-19. 

"  Elastic  Limit  System  "  of  note 
issues  [Jevons],  515  16. 

Eliot,  Perceval, advocates  "ideal" 
money,  298. 

Elizabeth,  Queen,  the  recoinage 
of  her  reign,  206-9. 

England,  less  coin  in  1838  than 
fifty  years  before,  69  ;  its  rela- 
tion to  the  gold  supplies  after 
1851,  151-2 ;  increase  of  coin 
between  1851  and  1860,  156  ; 
its  coinage,  168-9  ;  the  mint  at- 
tacked by  Mr.  Seyd,  173-4 ; 
former  circulation  of  foreign 
coin,  179  ;  debasement  of  the 
coin  under  Henry  VIII.  and 
Edward  VI.,  186  ;  the  recoin- 
ages  of  1560,  1696,  1774,  chap. 


INDEX. 


535 


xi.  ;  the  policy  of  throwing  off 
the  expense  of  recoinage,  215- 
16;  adopts  the  single  gold  stand- 
ard in  1816,  222  ;  the  bank  re- 
striction, 347-65 ;  account  of 
convertible  paper  money  in 
England,  chap.  xx. 

Ethiopians  used  carved  pebbles 
as  money,  25. 

Europe,  its  yield  of  the  precious 
metals,  103. 

Exchange  of  notes  between  banks, 
essential  to  true  convertibility, 
480-1,  505-6. 

Exchange,  bills  of,  are  they 
money?  401-2. 

Exchanges,  the  Foreign,  afford  a 
test  of  the  depreciation  of  in- 
convertible paper  money,  or 
debased  coin,  352  ;  influence  of 
bad  money  upon,  382-3,  482-4  ; 
Mr.  Goschen's  theory  of,  458- 
64 ;  regulation  of  note  issues 
according  to  the  exchanges. 
464-9. 

Exchequer  bills,  are  they  money  ? 
405  6. 

Exportation  of  gold  and  silver 
prohibited,  45  ;  prohibition  not 
wholly  ineffectual,  55-6 ;  the 
causes  of,  56-7,  356-8 ;  does 
exportation  of  bullion  decrease 
the  quantity  of  money  ?  408-70. 

Farming  of  Mines,  effect  upon 
production,  114-13,  125-6. 

Faucher,  Leon,  Russian  restric- 
tions on  gold  mining,  143/1  ; 
relative  value  of  silver  and  gold, 
230/1 ;  advocates  restriction  on 
bank  issues,  439. 

Felt,  J.  B.,  History  of  Massa- 
chusetts Currency,  the  paper 
money  of  Massachusetts,  308, 
320-1. 

Fessenden,  W.  P.  [U.  S.  Senate], 
on  the  Legal  Tender  bill,  3T3. 

Forbes,  J.  M.,  premature  railway 
construction  in  the  United 
States,  473/1. 

France,  less  coin  in  1838  than  be- 
fore the  Revolution,  70 ;  its 
yield  of  the  precious  metals, 
105  ;  coinage,  189  ;  inventions 
in  coinage,  172  ;  debasement  of 
the  coin  by  early  kin^s,  186-7  ; 
its  disasters,  1340-1140,  attri- 


buted to  this  cause,  188-9  ; 
payment  of  agricultural  wages 
in  *  kind,  200  ;  relation  of  gold 
and  silver  in  the  coinage,  252  ; 
the  Revolutionary  assignaU, 
336-45  ;  the  mandate,  346  ; 
the  suspension  of  1848,  365  ;  of 
1870,  366,  382-3  ;  banking  sys- 
tem, 438ft,  511-13;  paper-money 
banking  in  the  French  Colo- 
nies, 513. 

Free  Banking,  free  trade  in  bank- 
ing is  free  trade  in  swindling 
[Tooke],  438  ;  what  Lord  Over- 
stone  regards  as  truly  free 
banking,  449  ;  the  New  York 
Free  Banking  Law,  504-5. 

Froude,  J.  A.,  History  of  Eng- 
land, the  recoinage  of  1560, 
206-9. 

Frugality  encouraged  by  the  use 
of  money,  18. 

Fuggers,    The,    eminent  miners, 


Fullarton,  John,  Regulation  of 
Currencies,  power  of  law  to 
prevent  melting  of  coin,  259  ; 
circulation  of  bills  of  exchange, 
401  ;  convertible  paper  money 
will  operate  precisely  like  me- 
tallic money,  423  ;  exports  of 
bullion  made  from  hoards, 
470ft  ;  bank  money  in  the  Unit- 
ed States  not  convertible,  500ft. 

Gairdner,  Charles,  "Elasticity" 
of  bank  money,  414. 

Gallatin,  Albert,  Considerations 
on  the  Currency,  etc.,  advocates 
the  higher  rating  of  gold  in  the 
United  States  coinage,  226  n  ; 
favors  bi-metallic  money,  239  ; 
effects  of  resumption  of  specie 
payments  after  a  long  suspen- 
sion, 360/i  ;  a  sort  of  compul- 
sion to  take  bank  notes,  483  ; 
the  first  Bank  of  the  United 
States,  492;  the  use  of  bad 
money  is  false  economy,  525ft. 

Gamier,  Joseph,  Traite  de  Fi- 
nances, the  "  assignats"  of  the 
Revolution,  336,  339,  344  ;  Aus- 
trian paper  money,  368ft  ;  defi- 
nition of  paper  money,  896ft. 

Germany,  payment  of  agricul- 
tural wages'  in  kind,  200  ;  rela- 
tion of  gold  and  silver  in  the 


536 


INDEX. 


coinage,  232,  238,  260  ;  paper  \ 
money  banking,  514-17. 

Geyer,  Ph.,  Theorie  und  Praxis 
des  Zettclbankwesens,  converti-  | 
ble  paper  money  may  be  issued 
in  excess,  432ft. 

Gibbon,  E.,  importance  of  the 
money  function,  14. 

Gilding  on  metals  and  china  un-  | 
known  to  the  ancients,  119%  ;  j 
largely  practised  in  the  middle  j 
ages,  120. 

Gold,  properties  fitting  it  for  use 
as  money,   39-40 ;   use  in  the 
arts,  43  ;  the  field  of  produc- 
tion, 99-106  ;   economic  condi- 
tions of    production,    100-116, 
237-8?i,  254/i ;  regarded  in  early  i 
ages  as  treasure,   not  money,  ' 
108-9  ;   history  of  production,  I 
chaps,  vi.-viii.  ;  relation  to  sil-  | 
ver  in  the  coinage  of  England,  ' 
217-18,   224-5  ;  of  the   United 
States,  225-8  ;  variations  in  its 
power  to  purchase  silver,  229-  j 
30  ;  effect  of  the  American  dis-  ! 
coveries,   231-3 ;    of  the  Cali- 
fornian  and  Australian  discov- 
eries, 233-4;   replaces  silver  in 
the  coinage  of  France,  235-6  ; 
change  in  production  after  1865, 
237  ;  now  generally  advocated 
as  the  sole  metal  of  unlimit- 
ed legal  tender,  238-9;  inter- 
changeable use  of  silver  and 
gold,    effect    on    the   price  of 
either,   246-53;    what    is    the 
power  of  law  to  preserve  steadi- 
ness of  value  between  gold  and 
silver  ?  253-67  ;  no  true  par  of 
exchange  between  a  gold  and  a 
silver  country,  461. 

"Gold  Notes"  in  the  United 
States,  509. 

Goschen,  G.  J.,  Report  of  the  Com- 
mittee on  the  Depreciation  of 
Si'ver,  218,  233ft,  265^  ;  Theory 
of  the  Foreign  Exchanges,  mean- 
ing of  the  word  exchange, 
458 ;  the  elements  of  foreign 
indebtedness,  460 ;  exchange 
between  countries  having  dif- 
ferent money  metal,  461%  ; 
raising  the  rate  of  interest 
to  stop  a  drain  of  bullion, 
475-7. 

Gouge,  Wm.  M.,  History  of  Paper 


Money  and  Banking  in  the  Unit- 
ed States,  485. 

Graham,  Sir  James,  Coin  and  Cur- 
rency, effects  of  the  Resump- 
tion Act  of  1819,  362-4;  the 
country  bank  circulation,  451. 

Greece,  cattle  used  as  money  in 
ancient  times,  31;  copper  skew- 
ers, do.,  32  ;  its  yield  of  the 
precious  metals,  106;  accedes 
to  the  Latin  Monetary  Union, 
238ft. 

Greed,  in  the  economic  sense,  op- 
posed to  a  true  sense  of  self- 
interest,  111  ;  destructive  ef- 
fects upon  mining,  112-15. 

Gresham,  Sir  Thos.,  his  wealth 
largely  in  rings  and  chains, 
118  ;  his  theorem,  or  "law," 
respecting  inferior  currencies, 
193-5. 


Hallam,  Henry,  History  of  the 
Middle  Ages,  coinage  a  prero- 
gative of  the  crown,  169  ;  ad- 
justment of  prices  to  debase- 
ment of  coin,  187-8. 

Hamburg,  Bank  of,  its  note  is- 
sues, 522. 

Hamilton,  Alex.,  Report  on  the 
Sank,  irregularity  of  the  coins 
of  the  United  States,  194  ;  ad- 
vocates concurrent  circulation 
of  gold  and  silver,  269  ;  over- 
issues of  inconvertible  paper 
money,  379 ;  government  should 
regulate  bank  issues,  498ft. 

Hankey,  T.,  On  Banking,  Bank 
of  England  notes  are  not  re- 
issued, 403ft  ;  the  circulation  of 
Great  Britain,  451ft  ;  saving  by 
the  issue  of  bank  notes,  523ft. 

Harris,  Joseph,  Essay  on  Money 
and  Coins,  free  coinage,  184ft  ; 
proposes  to  reduce  the  standard 
of  the  coin,  214. 

Hartz  Mountains,  discovery  of  sil- 
ver, 104ft  ;  yield  of  silver,  105. 

Hayti,  paper  money,  3G9ft. 

Henry  VIII.  corrupts  the  coin  of 
England,  189. 

Hertz,  Hartwig,  bank  notes  cir- 
culate without  scrutiny,  402ft. 

Hertzka,  Th.,  Wtihrung  und  Han- 
del, attacks  M.  Cernuschi's  posi- 
tion, 259-61  ;  the  debtor  class 
largely  producers,  268ft. 


INDEX. 


537 


Hildreth,  Richard,  History  of  the 
United  States,  redemption  of 
the  Revolutionary  issues,  332- 
3n. 

Hobbes,  Thomas,  Nutrition  of  a 
Commonwealth,  importance  of 
the  money  function,  167ft. 

Holland,  relation  of  gold  and 
silver  in  the  coinage,  232-4, 
239;  paper-money  banking,  513. 

Horner,  Francis,  corn,  "  the  real 
and  paramount  standard  of  all 
values,"  159;  the  bullion  re- 
port and  resolutions  ;  was  Mr. 
Ricardo  ill-treated  ?  353-4. 

Horton,  S.  D.,  Silver  and  Gold, 
money  as  a  store  of  value,  12/i ; 
should  the  fear  of  exciting  the 
spirit  of  repudiation  lead  to 
concealment  of  economic  truth? 
93ft  ;  his  view  of  bi-metallism, 
265,  270;  value  of  "green- 
backs "  and  silver,  278ft. 

Horton, 'V.  B.  [U.  S.  Ho.  Reps.], 
opposes  the  issue  of  legal  tender 
notes,  373. 

Hubbard,  J.  GK ,  replies  to  Col. 
Tomline  on  the  influence  of 
billon  upon  the  poorer  classes, 
219-20  ;  large  notes  in  the  cir- 
culation of  the  Bank  of  Eng- 
land, 404tt. 

Humboldt,  Alex,  v.,  high  pur- 
chase power  of  gold,  41 ;  esti- 
mate of  the  production  of  the 
precious  metals  in  America, 
132-3  ;  estimate  of  the  export 
of  silver  to  the  East,  141;  com- 
parative production  of  silver 
and  gold,  231  n. 

Hume,  David,  money,  "the  oil 
which  renders  the  motion  of 
the  wheels  more  smooth  and 
easy,"  7Sn  ;  advantages  of  a 
considerable  increase  in  the 
supply,  79-81 ;  effect  of  the 
American  discoveries  on  prices, 
135/i ;  the  paper  money  of  Co- 
lonial Pennsylvania,  322. 

Hungary,  its  yield  of  the  precious 
metals,  105,  140. 

Hunter,  William,  Annals  of  Ru- 
ral Bengal,  coinage  in  India, 
169,  211-12ft;  discount  upon 
copper  coins,  220/i ;  Sir  James 
Steuart's  introduction  of  a  mon- 
ey-of -account,  294-5. 

23* 


Huskisson,  W.,  Depreciation  of 
the  Currency,  England,  in  1825, 
"within  twenty-four  hours  of 
barter,"  15  ;  relation  between 
the  existing  volume  of  money 
and  ruling  prices,  60  ;  condition 
of  the  English  coin  in  1773, 
213  ;  distinction  between  paper 
money  and  circulating  credit, 
276  ;  prohibition  of  the  melting 
of  the  coin,  352. 

"  Ideal "  Money,  as  the  denomina- 
tor of  values,  8-9,  290-9,  376-7. 

Illyria,  its  yield  of  the  precious 
metals,  106. 

Inconvertible  Paper  Money, 
Theory,  chap.  xiv.  ;  illustra- 
tions, chaps,  xvi.-xvii. ;  Theory, 
concluded,  chap.  xvii. 

India,  small  yield  of  the  precious 
metals,  101  ;  movement  of  sil- 
ver to,  109-10, 141-2, 146-7  ;  use 
of  silver  in  ornaments,  157w. ; 
ProfessorCairnes  anticipates  the 
early  adoption  of  paper  money, 
147-8  ;  coinage,  169  ;  relation  of 
gold  and  silver  in  the  coinage, 
239-40. 

Interest,  rate  of,  how  affected  by 
increase  of  money  supply,  94-8 ; 
raising  the  rate  to  check  the 
drain  of  bullion,  475-6  ;  power 
of  the  Bank  of  England  over 
the  rate,  477-8. 

Ireland,  its  yield  of  the  precious 
metals,  103 ;  relation  of  its 
coin  to  that  of  England,  206-7  ; 
paper-money  banks,  450-1. 

Iron  as  money,  37. 
|  Italy  produces  no  gold  or  silver, 
103  ;  relation  of  gold  and  silver 
in  the  coinage,  238  ;  gold  coin- 
age in  the  thirteenth  century, 
252 ;  inconvertible  paper  money, 
|  369  ;  bank  statistics,  513/i. 

Jacob,  William,  Inquiry  into  the 
Precious  Metals,  "  compendious 
value  "  of  gold,  41 ;  an  increase 
of  money  supply  temporarily 
incites  industry,  87  ;  origin  of 
his  "  Inquiry,"  100  ;  history  of 
gold  and  silver  production, 
chaps,  v.-viii.  passim;  the 
English  mints,  169  n  ;  coinage 
in  the  middle  ages,  171  ;  among 
the  ancients,  175  ;  melting  of 


538 


INDEX. 


English  sovereigns  in  Paris, 
178  ;  circulation  of  foreign  coin 
in  England,  179  ;  debasement  of 
English  coin,  186  ;  comparative 
production  and  consumption  of 
gold  and  silver,  230ft. 

Japan,  its  yield  of  the  precious 
metals,  102  ;  relation  of  gold 
and  silver  in  the  coinage,  230, 
239  ;  paper  money,  303-4. 

Jefferson,  Thomas,  favors  bi-me- 
tallic  money,  269  ;  the  money 
of  the  colonies,  306  n  ;  the  paper 
money  of  the  Revolution,  331-3. 

Jevons,  Professor,  Money  and  the 
Mechanism  of  Exchange,  anal- 
ysis of  the  money  function, 
1  14  ;  fluctuations  in  the  value 
of  gold,  158  ;  tabular  standard 
for  deferred  payments,  159- 
63 ;  the  English  mint,  173 ; 
seigniorage  on  silver  coinage 
furnishes  a  fund  for  recoinage, 
197  ;  the  concurrent  circulation 
of  silver  and  gold  [the  "  dou- 
ble standard"],  chaps,  xii.-xiii. 
passim;  the  "measure  of 
value,"  281-4  ;  competition  in 
issues  may  cause  inflation, 
436ft  ;  the  "  elastic  limit"  sys- 
tem of  bank  issues,  514-15ft. 

Theory  of  Political  Economy, 
"  Labor  once  spent  has  no  in- 
fluence on  the  future  value  of 
any  article,"  245  ;  equivalence 
of  commodities,  250-1  ;  abraded 
coin  in  England,  215-16  ;  esti- 
mate of  the  proportion  of  money 
to  gross  income  in  England, 74ft. 

John  II.,  of  France,  corrupts  the 
coin,  186,  188  ;  practises  on  the 
English  coin,  195ft. 

Joplin,  T.,The  Currency  Question, 
the  bullion  report,  353. 

Kelley,  W.  D.,  advocates  non-ex- 
portable money,  300. 

Kitchin,  G.  W. ,  History  of  France, 
corruption  of  the  coin,  188ft. 

King,  Lord,  his  thoughts  on  the 
Bank  of  England  restriction  ; 
his  theory  of  inconvertible  pa- 
per money,  352  ;  his  demand 
on  his  tenants,  355. 

Knight,  R.  P.,  The  Symbolical 
Language  of  A  ncien  t  Mythology, 
spikes  the  first  form  of  coinage, 


165 ;   sacredness  of  devices  on 
ancient  coins,  170. 
Kossuth,   Louis,   his   attempt  to 
introduce     paper    money    into 
Hungary,  368ft. 

Laboring  Classes,  chief  sufferers 
by  bad  money,  210-11,  220-1, 
384-6. 

Languedoc,  its  mines  of  silver, 
105. 

"Latin  Union"  [Monetary  Con- 
vention of  1865],  238-40,  243, 
266. 

Lauderdale,  Lord,  Depreciation 
Proved,  circulation  of  Portu- 
guese coins  in  England,  179  ; 
criticism  of  Sir  J.  Stcuart, 
290-1  ;  of  Perceval  Eliot,  298. 

Laveleye,M.,  compensatory  action 
of  bi-metallic  money,  256  ;  en- 
hancement of  the  burden  of 
debts  through  demonetization 
of  silver,  268. 

Law,  its  power  to  prevent  the  ex- 
port of  bullion,  55-6w,  351-2»  ; 
to  unite  silver  and  gold  at  a 
fixed  ratio,  258-64 ;  invoked 
against  the  premium  on  silver 
and  gold,  331,  343-4. 

Law,  John,  non-exportability  an 
advantage  in  money,  300 ;  his 
connection  with  the  Mississippi 
scheme  in  France,  304,  336. 

"Lawism"  [McLeod,]  the  basing 
of  money  upon  land,  324. 

Lead,  used  as  money,  formerly 
cheaper  than  iron,  37. 

Levi,  Prof.,  History  of  British 
Commerce,  relative  value  of 
gold  and  silver,  232-3  ;  effects 
of  Californian  and  Australian 
discoveries,  234;  "life"  of  a 
bank  note,  403  ;  the  bank  en- 
quiry of  1832,  444ft. 

Liverpool,  Lord,  On  the  Coins  of 
the  Realm,  the  coinage  act  of 
1717,  22571.  ; 

The   Second  Lord,  advocates 
the  single  gold  standard,  228-9. 

Locke,  John,  England  draws  its 
money  from  other  countries, 
56  ;  money  "  drained  into  stand- 
ing pools,"  71  ;  estimate  of  the 
amount  of  money  needed  in 
England,  74  ;  breadstuffs  as  the 
standard  for  deferred  payments, 


INDEX. 


539 


159  ;  Locke's  part  in  the  recoin- 
age  of  1690,  213-14  ;  objects  to 
receiving  clipped  money,  355  °, 
currents  of  trade,  519. 
London,  as  a  centre  of  Exchange, 
gains  at  the  expense  of  Paris, 

OQ  q 
Ooo. 

Lorraine,  its  mines  of  silver,  105. 

Lovejoy,  Owen  [U.  S.  Ho.  Reps.], 
opposes  the  issue  of  legal-ten- 
der notes,  372-3. 

Lowe,  Joseph,  scheme  for  a  tabu- 
lar standard,  lliO-1 

Lowndes,  Win.,  proposes  to  re- 
duce the  standard  of  the  coins, 
213-14. 

Lubbock,  Sir  John,  analysis  of 
payments  into  the  bank,  72. 

Macaulay,  Lord,  History  of  Eng- 
land, the  recoinage  of  1G9G, 
209-13. 

Macedon,  spoil  taken  by  Paulus 
JSmilius,  109. 

Maclaren,  J.,  History  of  the  Cur-  \ 
rency,  why  should  the  power  ! 
to  make  a  fortune  be  cherished 
at  the  expense  of  fortunes  that  , 
have  been  made  ?  92  ;  the  Bank  j 
of  England  takes  up  the  circula-  j 
tion  which  the  country  banks 
relinquish,  447?i. 

Macpherson,  History  of  Com- 
merce, bankers  pushing  out 
their  notes,  488/1. 

Madison,  James,  The  Federalist, 
prohibition  to  the  States  of  the 
issue  of  "  Bills  of  Credit," 
334-5. 

Maine,  Sir  H.  S.,  Early  History 
of  Institutions,  cattle  used  as 
money,  31-2. 

Majorca  produces  no  gold  or  sil- 
ver, 103. 

Malay  peninsula,  its  yield  of 
precious  metals,  101. 

Malthus,  Rev.  T.  R.,  attacks 
Ricardo's  statement  of  the  dis- 
tribution of  the  precious  metals, 
52. 

Maudats,  territorial,  succeed  the 
Assignats  in  France,  346. 

Mannequin,^  M. ,  La  Monnaie  et  le 
Double  Etalon,  revival  of  bi- 
metallism, 241'ft  ;  dissents  from 
M.  Wolowski  as  to  the  com- 
pensatory action  of  the  two 


metals,  255ft  ;  the  "  measure  of 
value,"  280-171. 

Mansfield,  Lord,  bank  notes  are 
money,  398ft. 

Manufactured  products,  their 
prices  less  affected  by  increase 
of  money  supply  than  the 
prices  of  raw  materials,  154-5. 

Martin,  M.,  his  account  of  gold 
in  the  "  Western  Islands,"  103?i. 

Martineau,  M.,  advocates  the  is- 
sue of  "  assignats,"  337. 

Maryland,  attempt  to  establish 
a  mint,  172ft ;  colonial  paper 
money,  324 ;  revolutionary  is- 
sues, 328-9. 

Massachusetts,  corn  and  beaver 
as  money,  33 ;  cattle  received 
in  payment  of  taxes,  34 ;  first 
emission  of  "  Bills  of  Credit," 
1690,  307-8 ;  further  issues, 
320 ;  redemption,  11  :  1,  321 ; 
revolutionary  issues,  328-9 ; 
fine  on  banks  remaining  in 
suspension,  493-47*  ;  bank  act 
of  1829,  503ft. 

McCulloch,  J.  R.,  an  increase  of 
the  money  supply  always  bene- 
ficial, 92  ;  competition  in  issue 
between  banks,  436-7  ;  Com- 
mercial Dictionary,  English 
gold  coinage,  176 ;  relation  of 
Scotch  and  Irish  to  English 
coinage,  206-772, ;  relation  of 
gold  and  silver  in  the  English 
coinage,  224-5  ;  bank  notes  are 
money,  399-400  ;  compulsion  to 
take  them,  483  ;  the  faults  of 
the  American  banking  system, 
500  ;  success  of  Scotch  bank- 
ing, 510. 

McCulloch,  Hugh,  effort  as  Secre- 
tary of  U.  S.  Treasury  to  re- 
tire legal-tender  notes,  374-5. 

McLeod,  H.  D.,  Principles  of 
Economical  Philosophy,  "mo- 
ney is  the  representative  of 
debt,"  26-7;  the  Mercantile 
system,  44-6;  circulation,  a 
quantity  of  two  dimensions,  63  ; 
the  use  of  money  saved  by  the 
cancellation  of  debts,  67  ;  down- 
fall of  the  "  assignats,"  346-7  ; 
the  word  currency,  396  ;  Arbi- 
tration of  Exchanges,  459  ;  Ex- 
change between  gold  countries 
and  silver  countries,  46171 ; 


540 


INDEX. 


failure  of  the  Act  of  1844, 
460-8. 

"  Measure  of  Value,"  does  money 
serve  as  a  measure  of  value? 
4-9,  64-5,  196,  280-90,  376-7. 
[See  "  Denominator  in  Ex- 
change."] 

Medina,  a  Mexican  miner,  dis- 
covers the  quicksilver  process, 
133. 

Medium  of  Exchange,  1-4,  204; 
inconvertible  paper  money  may 
serve  as,  376. 

Mercantile  Theory  and  System, 
44-8  ;  Adam  Smith  attributes 
to  it  the  English  law  of  free 
coinage,  183. 

Merivale,  C.,  History  of  the  Ro- 
mans, the  habits  of  the  Romans 
respecting  the  use  of  gold  and 
silver  as  ornaments,  119ft. 

Metals  as  money,  36-43. 

Mexico,  cacao  used  as  money,  35  ; 
tin  as  money,  37 ;  yield  of  the 
precious  metals,  132-3 ;  com- 
pared with  Peru,  137  ;  effects 
of  revolutions  upon  the  pro- 
duction of  the  precious  metals, 
139-40  ;  early  inhabitants  had 
no  knowledge  of  scales  or 
weights,  164 ;  used  quills  of 
gold  dust,  166. 

Milburn,  Win.,  Oriental  Com- 
merce, old  clothes  are  good 
money  in  St.  Jago,  25ft  ;  pad- 
dy at  Porto  Novo,  32ft  ;  the 
"  cash "  of  China,  166  ;  the 
" gall"  of  Cochin  China,  171. 

Mill,  James,  Commerce  Defended, 
coin  in  international  transac- 
tions passes  only  at  its  bullion 
value,  392ft. 

Mill,  John  Stuart,  Principles  of 
Political  Economy,  money  a 
machine  for  doing  a  particular 
work,  4-5 ;  the  need  of  a 
"  measure  of  value,"  6-8,  282- 
4  ;  the  prohibition  of  export  of 
bullion  not  wholly  ineffectual, 
55-6  ;  the  relation  between  the 
money  supply  and  prices  ;  bor- 
rowing capital  is  habitually 
spoken  of  as  borrowing  money, 
94-5^ ;  the  economic  condition 
of  the  production  of  money, 
107 ;  competition  in  retail  mar- 
kets, 222n ;  effect  upon  the 


value  of  money  of  a  change  in 
the  cost  of  producing  it,  246  ;  in- 
fluence of  custom  in  economics-, 
386  ;  bullion  movements  often 
take  place  without  affecting  the 
prices  of  commodities,  470ft. 

Mining  of  the  precious  metals, 
economic  conditions,  107 ;  in 
early  ages  largely  non-econ- 
omical, 108-10  ;  prejudiced  b~~ 
the  passion  of  sudden  gain,  111- 
15  ;  effects  of  the  system  of 
farming  the  mines,  114-15, 125- 
6  ;  effects  of  war  and  civil  con- 
vulsion, 115-16,  139-40  ;  the 
art  of  mining  lost  in  the  mid- 
dle ages.  130.  v 

j  Minorca  produces  no  gold  or  sil- 
L     ver,  103. 

1  Mints  of  England,  India,  France, 
169  ;  inventions  in  coinage,  172; 
Mint  of  the  United  States,  172- 
3 ;  of  Massachusetts  colony, 
172  ;  of  Russia,  173. 

Mirabeau,  M.,  advocates  the  is- 
sue of  "  assignats,"  338-9. 

Mixed  Currency,  a  term  applied 
to  Convertible  Paper  Money  by 
Mr.  Norman  and  Prof.  A.  Walk- 
er, 487. 

Money.  Metallic  money,  Part  I.  : 
The  money  function,  chap.  i.  ; 
the  occasion  for  money  comes 
from  trade,  1,  48-9  ;  money  as  a 
medium  of  exchange,  2-4,  204, 
376  ;  as  a  so-called  V  measure 
of  values,"  or  denominator  in 
exchange,  4-9,  64-5, 196,  280-6, 
376-7  ;  as  a  standard '  for  de- 
ferred payments,  10-11,  90, 157- 
9,  377-8  ;  as  a  store  of  value  (?), 
11-13 ;  the  several  functions 
need  not  be  united  in  one  sub- 
stance, 13-14,  158  ;  money  must 
be  "particular,"  14 ;  importance 
of  the  money  function,  14-21 ; 
money  is  in  political  economy 
what  blood  is  in  the  animal 
economy,  17-18 ;  encourages 
small  savings,  18 ;  stimulates 
production,  19,  79-84  ;  helps  the 
classes  which  are  economical- 
ly feeblest,  20,  220-1;  Prof. 
Price's  view  that  the  analysis 
of  primitive  money  yields  ' '  the 
fundamental  principles"  of  all 
currency,  21-2  ;  is  money  ca- 


INDEX. 


541 


pital  ?  22 ;  is  it  productive?  23  ; 
the  .elements  of  money,  chap. 
ii.  ;  general  acceptability,  24- 
5  ;  is  money  the  representative 
of  debt  ?  20-8  ;  is  it  a  guaran- 
tee ?  29-30  ;  always  a  means  to 
an  end,  30 ;  various  articles 
used  as  money — pebbles,  beads, 
wampum,  shells,  feathers,  25  ; 
grain,  cattle,  31  ;  rice,  to- 
bacco, copper  skewers,  nails, 
bullets,  32  ;  tea,  dates,  furs, 
33  ;  portability  in  money,  33  ; 
uniformity,  33-4  ;  non-liability 
to  deterioration,  34  ;  suscepti- 
bility to  division,  35-6  ;  com- 
parative steadiness  of  value, 
36  ;  the  metals  as  money,  36  ; 
iron,  lead,  tin,  37  ;  copper,  38  ; 
silver,  38-39  ;  gold,  39-41. 

Money,  by  the  Mercantile 
theory,  regarded  as  the  sole  or 
principal  wealth,  44-8 ;  how 
much  does  a  community  re- 
quire ?  48-9,  57-63  ;  territorial 
distribution  of  money  through 
the  agency  of  price,  chap.  iii. ; 
Ricardo's  statement,  49-57,  cf. 
150-7,  356-8,  388,  390-1,  518 ; 
relation  between  the  existing 
body  of  money  and  ruling 
prices,  58-62  ;  money  a  quan- 
tity of  two  dimensions,  62-3, 
418  ;  "  rapidity  of  circulation," 
Mr.  Mill  criticises  the  phrase, 
63  ;  serves  as  a  denominator  of 
values  when  it  is  not  the  me- 
dium of  exchange,  64-5 ;  de- 
mand for  money  diminished  by 
extension  of  credit,  65-9,  197- 
204  ;  by  the  deposit  and  check 
system,  70-2  ;  the  amount  of 
money  required  by  any  com- 
munity depends  on  a  variety  of 
circumstances,  73-4 ;  it  is  not 
necessary  that  it  should  be 
known,  74 ;  poor  countries 
will  have  little  money,  74-5  ; 
importance  of  the  money  supply, 
chap.  iv.  ;  the  law  of  distribu- 
tion applies,  whatever  the  value 
of  money,  76  ;  Bastiat  illustrates 
the  proposition  that  increase 
of  money  does  not  enrich  a  com- 
munity, 77-8 ;  Prof.  Cairnes 
deprecates  any  considerable  in- 
crease, 78-9  ;  Hume's  argument 


in  favor,  79-81  ;  Alison's  claim, 
81-4 ;  pleas  for  a  progressive 
increase  of  the  money  supply 
considered ;  stimulus  to  in- 
dustry, 85-8  ;  reduction  of  taxa- 
tion, 88-9  ;  reduction  in  the 
burden  of  debts,  88-94 ;  the 
money  supply  and  the  rate  of 
interest,  94-8. 

The  production  of  the  pre- 
cious metals,  chaps,  v.-viii. 

Elements  of  the  problem  of 
the  money  supply ;  economic 
conditions  of  the  production 
of  money,  106-7  ;  of  the  min- 
ing of  gold  and  silver,  107- 
116  ;  consumption  of  the  pre- 
cious metals  in  the  arts,  117- 
20 ;  loss  by  abrasion  of  coin, 
121-2  ;  exportation  to  the  East, 
122-3,  141-2,  146-7. 

Prof.  Cairnes'  exposition  of 
the  effects  of  an  increase  of  the 
money  supply  upon  different 
countries,  150-2 ;  upon  differ- 
ent commodities  and  industri- 
al classes,  152-7,'  the  larger  the 
proportion  of  wealth  that  goes 
to  the  laborer,  the  greater  the 
necessity  for  coin,  156. 

Corn  rents  instead  of  money 
rents,  157-9  ;  a  tabular  stand- 
ard for  deferred  payments,  159  - 
63. 

Effects  of  seigniorage  upon  the 
purchasing  power  of  coin,  189- 
93  ;  use  of  money  discouraged 
by  loss  of  reputation  leading  to 
extension  of  credit  and  barter, 
198-204,  279  ;  effect  upon  the 
value  of  money  of  a  change  in 
the  cost  of  producing  it,  246  8. 

Inconvertible  paper  money, 
Part  II.  Need  money  be  a  ma- 
terial equivalent  ?  275-6  ;  the 
theory  of  inconvertible  paper 
money,  chap.  xiv.  ;  illustra- 
tions, chaps,  xiv. ,  xv.  ;  "  ideal  " 
money,  money  of  account, 
290-9 ;  does  war  render  ne- 
cessary a  suspension  of  spe- 
cie payments  ?  326-7,  349-51  ; 
is  the  premium  on  gold  the 
measure  of  depreciation?  361- 
4,  374,  379-81,  387-91  ;  the 
danger  of  excessive  issues,  377- 
82 ;  the  evils  of  excessive  is- 


542 


INDEX. 


sues,  333-5,  341-4,  £82-4 ;  es-  j 
pecially  to  the  poorer  classes, 

Convertible  paper  money, 
Part  III.  Theory,  chap,  xviii.  ; 
the  currency  principle  vs.  the 
banking  principle,  chap.  xix.; 
convertible  paper  money  in 
England,  chap.  xx.  ;  in  the 
United  States  ;  other  examples, 
xxi.  ;  theory  concluded,  chap, 
xxii. 

What  is  money  ?  bank  notes  ? 
395-8  ;  checks  ?  398-9  ;  bills  of 
exchange?  399-403  ;  the  larger 
bank  notes  ?  403  ;  bank  depos- 
its ?  404  ;  exchequer  bills  ?  405- 
6  ;  money  is  that  money  does, 
405-7. 

Convenience  of  paper  money, 
409,  522  ;  cheapness  of  bank 
notes,  409-11 ;  per  contra,  522-8 ; 
"  elasticity,"  414-19  ;  a  conver- 
tible paper  money  should  ope- 
rate precisely  as  metallic  money 
would  under  the  same  circum- 
stances, 419-20 ;  opposing  views  j 
as  to  whether  it  will  so  operate,  j 
chap.  xix.  passim,  517-21  ;  the 
American  bank-paper  money 
often  of  questionable  converti- 
bility, 479-85,  493-4,  500,  517- 
18. 

Mongols,  The,  issue  paper  money, 
302-4,  312w. 

Mono  metallists,  their  position  de-  j 
fined,  2234,  see  chap,  xii.- i 
xiii.  passim. 

Montague,  Charles,  the  coinage 
of  1696,  209-13. 

Montesquieu,  M.,  De  V Esprit  des  \ 
Lois,  relation  between  the  ex-  j 
isting  volume  of  money  and  ; 
ruling  prices,  59ft. 

Moors,  The,  in  Spain,  their  habits 
in  working  mines,  105ft. 

Morrill,  J.  S.  [U.  S.  House  Rep.], 
opposes  issue  of  legal-tender 
notes,  371-2. 

Morris,  Gouverneur,  "papier- 
terre,"323. 

Murchison,  Sir  R,,  Siluria,  gold 
found  superficially  ;  silver  in 
deep  mines,  102ft. 

National  bank  system  of  the  U. 
S.,  507-9. 


Neaves,  Mr.,  the  English  Bank 
Act  of  1844,  448. 

Necker,  M  ,  opposes  issue  of  the 
assignats,  330-9. 

Netherlands,  the  Bank  of,  513. 

Nevada  silver  mines,  237  ;  pro- 
portion of  gold  in  silver  ores, 

Newcomb,  Prof.,  gold  and  silver 
coin,  unproductive  capital,  23ft ; 
inconvertible  paper  no  true  re- 
source in  war,  350-1. 

New  England,  wampum  used  as 
money  in  early  times,  25  ;  clip- 
ping the  coin,  196?z  ;  early 
forms  of  money,  305  7;  resort 
to  paper  money;  308;  issues 
prohibited  by  Parliament,  314  ; 
N.  E.  maintains  specie  pay- 
ments through  the  war  of  1812, 
492  ;  N.  E.  banks  in  1 839,  501ft  ; 
superiority  of  the  N.  E.  bank 
notes,  500. 

Newfoundland,  inhabitants  used 
dried  cod  as  money,  32-3. 

New  Hampshire,  colonial  paper 
money,  o08  ;  its  issues  put  under 
the  ban  in  other  colonies,  312ft. 

New  Jersey,  colonial  paper  mon- 
ey, 308,  322  ;  revolutionary  is- 
sues, 328-9. 

Newmarch,  Wm.,  an  increase  of 
the  money  supply  a  benefit  to 
society,  78;  great  number  of 
enterprises  at  any  time  await- 
ing encouragement,  434ft. 

"New  Tenor"  Bills  of  Credit, 
313-14,  319,  346. 

New  York,  colonial  paper  mon- 
ey, 308,  322  ;  revolutionary  is- 
sues, 328-9;  N.  Y.  banks  in 
1839,  501ft;  "Safety  Fund" 
banking  system,  503-4 ;  Free 
Banking  Law,  504-5 

Nicholson,  N.  A.,  Science  of  Ex- 
changes, the  British  Mint,  174  ; 
expense  of  coinage,  184 ;  loss  by 
"cut"  sovereigns,  255ft;  the 
position  of  the  mono-metal  lists, 
223-4  ;  bank  notes  are  money, 
398  ;  are  deposits  money  ?  405ft  ; 
convertible  paper  money  should 
fluctuate  precisely  like  metallic 
money,  420 ;  no  necessary  con- 
nection between  banking  and 
paper  money,  445  ;  the  Act  of 
1844,  448ft. 


INDEX. 


543 


Norman,  George  Warde,  Ee- 
marks  on  Currency  and  Bank- 
ing, modern  economy  of  money, 
69,  70;  advocates  the  "Cur- 
rency Principle,"  425,  430-1, 
517-18;  no  necessary  connection 
between  banking  and  paper 
money,  445. 

Normanby,  Lord,  Paris  in  1848 
reduced  to  barter,  15n. 

Noric  Alps,  their  yield  of  the  pre- 
cious metals,  106. 

North,  Dudley,  free  coinage  "is 
perpetual  motion  found  out," 
183  3. 

North  Carolina,  yield  of  gold, 
144,  228  ;  Colonial  paper  mon- 
ey, 324. 

Norway,  its  yield  of  the  precious 
metals,  104. 

"Old  Tenor"  Bills  of  Credit, 
313-14,  319,  346. 

Oresme,  N.,  De  Origine,  etc., 
Monetarutn,  usury  is  against 
nature,  96ft  ;  sanctity  of  de- 
vices on  coin,  171/i;  seignior- 
age, 181/1. 

Overstone,  Lord,  bank  deposit 
system  reduces  the  demand  for 
money,  70-1  ;  are  deposits  cur- 
rency? 405ft  ;  banking  reserves, 
412  ;  convertible  paper  money 
should  operate  precisely  like 
metallic  money,  420  ;  it  may  be 
issued  in  excess,  chap.  xix. 
passim,  517-18  ;  progress  of  the 
"Currency  Principle,"  443-7; 
objections  to  the  union  of  bank- 
ing and  issue,  448-7  ;  regula- 
tion of  note  issues  by  the  Ex- 
changes, 484-5  ;  effects  of  com- 
petition on  issues,  480  ;  success 
of  Scotch  banking  compatible 
with  commercial  disasters,  511  ; 
French  bank-note  circulation 
has  conformed  to  movements 
of  metallic  money,  511-12. 

Palgrave,  R.  H.  Inglis,  Notes  on 
Banking,  Swedish  bank  mon- 
ey, 413,  513;  Scotch  banking, 


Panics,  how  to  treat  them,  472-6. 
Paris,  ceases  to  be  a  centre  of  in- 

ternational exchanges,  383. 
Parnell,   Sir  H.,  Paper  Money, 


etc.,  paper-money  banking  in 
England,  414. 

Patterson,  R.  H.,  The  Science  of 
Finance,  "elasticity"  of  bank 
money,  414-15. 

Peel,  Sir  Robt.,  his  part  in  the  Re- 
sumption legislation  of  1817-19, 
356-64;  the  Act  of  1844,  424rc. 

Pennsylvania,  Colonial  paper 
money,  322-4;  Revolutionary 
issues,  328-9. 

Perry,  Prof.,  Elements  of  Pol. 
Economy,  money  stimulates  all 
the  processes  of  production, 
19 ;  value,  in  general,  only 
suitable  for  loaning  when  in  the 
form  of  money,  95  n ;  danger 
of  "over-issues  of  inconvertible 
paper  money,  382  ;  losses  in  the 
United  States  by  bad  bank 
money,  522-3. 

Persian  Empire,  its  treasures 
largely  derived  from  conquest, 
110  ;  purity  of  its  coin,  174-5. 

Persia,  its  yield  of  the  precious 
metals,  101  ;  irregular  coinage, 
171 ;  paper  money  in  thirteenth 
century,  303. 

Peru,  use  of  silver  in  the  arts, 
120 ;  its  yield  of  the  precious 
metals,  132-3  ;  compared  with 
Mexico,  137 ;  decline  in  pro- 
duction, 140. 

Petty,  Sir  Wm.,  estimate  of  the 
amount  of  money  needed  in 
England,  74  ;  money  the  fat  of 
the  body  politic,  78ft. 

Pheidon,  king  of  Argos,  first 
coined  money,  167. 

Phenicians,  The,  open  the  mines 
of  Greece,  106  ;  exchange  the 
silver  of  Europe  for  the  gold  of 
Asia,  109-10. 

Philip  of  Macedon,  lack  of  trea- 
sure, 108-9. 

Philippine  Islands,  their  yield  of 
the  precious  metals,  102. 

Phillips,  Henry,  Jr.,  the  Pennsyl- 
vania paper  money,  318w  ;  New 
Jersey  do.,  322  ;  Virginia  do., 
324. 

Platinum,  unsuited  for  coinage ; 
the  Russian  experiment,  167-8. 

Pliny,  gold  and  silver  always 
found  together  in  Spain,  264-5^. 

Poland,  alone  of  European  nations 
without  paper  money,  302. 


544 


INDEX. 


Pollock,  James,  the  coin  of  the 
United  States,  187. 

Polo,  Marco,  the  gold  product 
of  Japan,  102  ;  the  paper  money 
of  China,  302-3. 

Portability,  as  an  element  of 
money,  33. 

Portugal,  small  yield  of  the  pre- 
cious metals,  103  ;  circulation 
of  "moidores"  in  England, 
179  ;  of  "  sovereigns  "  in  Portu- 
gal, 185;  relation  of  gold  and 
silver  in  the  coinage,  234,  239. 

Potosi,  discovery  of  silver,  104ft, 
133. 

Potter,  E.  R.,  the  Rhode  Island 
paper  money,  316-20. 

Poucet,  M.,  Ethiopians  use  rock 
salt  as  money,  164ft. 

Pownall,  Governor,  the  paper 
money  of  Pennsylvania,  323. 

Precious  Metals,  The,  deemed  the 
sole  or  principal  wealth,  44-8  ; 
their  distribution  through  the 
agency  of  price,  49-57  ;  the  field 
of  production  of,  99-106  ;  the 
economical  conditions  of  pro- 
duction, 108-7 ;  the  production 
and  distribution  once  large- 
ly non-economical,  108-11 ;  in 
more  recent  times,  largely  un- 
economical, 111-15  ;  effects  of 
war  and  civil  convulsion, 
115-16  ;  history  of  production  ; 
Augustus  to  Columbus  ;  money  j 
famine  of  the  middle  ages,  chap. 
vi.;  from  1192  to  1848  ;  the  dis- 
covery of  America  ;  fall  in  the 
value  of  gold,  and  still  more  of  j 
silver,  chap.  vii. ;  the  Calif  ornian 
and  Australian  episode  ;  effect 
on  the  silver  price  of  gold, 
chap.  viii. 

Premium  on  gold  and  silver  under 
inconvertible  paper  money  ;  in 
revolutionarv  France,  340-1, 
345-7;  in  England,  352-64; 
other  examples,  365-9,  374 ; 
does  the  premium  measure  the 
depreciation  ?  360-4,  387-91  ; 
on  bills  of  exchange,  the  limits, 
462. 

Prescott,  W.  H.,  Conquest  of 
Mexico,  tin  used  as  money,  37  ; 
Mexicans  had  no  knowledge  of 
scales  and  weights,  164  ;  used 
quills  of  gold  dust,  166  ;  Con- 


quest  of  Peru,  silver  used  in  the 
mechanical  arts,  120. 

Price,  distinguished  from  value 
229-30. 

Price,  Prof.,  Principles  of  Cur- 
rency, "  Currency  has  its  origin 
in  the  division  of  labor,"  \n  ; 
money  "an  interposed  com- 
modity," 2  ;  the  analysis  of 
metallic  money  gives  "the 
fundamental  principles  of  all 
currency,"  21-2  ;  money,  a 
guarantee,  29  ;  only  a  tool  for 
a  specific  use,  30-1  ;  influence 
of  the  Mercantile  Theory,  47-8  ; 
Prof.  Price  misapprehends  Mr. 
Mill,  61;  money  measures  goods 
where  it  does  not  actually  ex- 
change them,  64ft  ;  Prof.  Price's 
definition  of  a  bank  criticised, 
68ft  ;  only  three  per  cent,  of 
payments  into  a  bank  made  in 
cash,  71-2  ;  inconvertible  paper 
money  need  not  depreciate, 
278ft  ;  the  public  has  a  definite 
want  of  bank  notes,  279ft  ;  the 
"Measure  of  Values,"  283ft  ; 
the  law  of  the  depreciation  of 
inconvertible  notes  obscure, 
387  ;  bank  notes,  a  form  of 
credit,  89771  ;  the  word  "repre- 
sent," 410  ;  convertible  paper 
money  cannot  be  inflated,  422  ; 
banks  may  be  regulated  by  the 
State,  437-8ft  ;  small  notes  not 
objectionable,  440  ;  "practical 
men  "  in  finance,  444ft  ;  no  ne- 
cessary connection  between 
banks  and  paper  money,  445  ; 
the  Bank  Act  of  1844,  448, 
452-3  ;  a  sort  of  compulsion  to 
take  bank  notes,  482-3  ;  success 
of  Scotch  banking,  510ft  ;  Prof. 
Price  deems  the  reserves  of 
the  Bank  of  England  excessive, 
524-8.. 

Prussia,  the  Royal  Bank  of,  514, 
516ft. 

Pyrenees,  The,  discovery  of  silver, 
;  their  silver  mines,  105. 


Raguet,  Condy,  Currency  and 
Banking,  are  deposits  "cur- 
rency ?  "  405ft  ;  conversion  of 
circulating  into  fixed  capital, 
473ft  ;  faults  of  American  pa- 
per-money banking,  485  ;  banks 


INDEX. 


545 


declaring  'dividends  while  in- 
solvent, 493 ;  swindling  banks, 
496-7». 

Railroads,  diminish  the  use  of 
money,  73. 

Ramsey,  Dr.,  History  of  South 
Carolina,  Colonial  paper  money, 
325  -  6  ;  revolutionary  issues, 
331^,  334-4;  History  of  the 
United  States,  effects  of  the 
"  Continental  Currency,  "^327. 

Rau,  Prof.,  on  the  word  Etalon, 
lift ;  compensatory  action  of 
bi-metallic  money,  257. 

Recoinage,  chap.  xi.  ;  the  Eng- 
lish recoinages  of  1560,  206; 
of  1696,  209  ;  of  1774,  212 ; 
should  "  the  ancient  standard  " 
be  restored?  213 ;  on  whom 
should  the  cost  of  recoinage 
fall  ?  214. 

"Reflux,"  The,  429,  517-21. 

Represent,  the  use  of  the  word 
in  the  philosophy  of  money, 
410. 

Reserves,  banking,  the  ratio  of 
oae-third,  412-13 ;  of  the  Bank 
of  Netherlands,  513  ;  of  the 
banks  of  Germany,  514,  516ft ; 
of  the  Bank  of  England, 
deemed  by  Prof.  Price  to  be 
excessive,  524-8. 

Restriction,  the  English,  347- 
65. 

Resumption,  the  English,  1819- 
21,  359-64;  contemplated  in 
the  United  States,  374-5. 

Retail  trade,  its  volume  must 
be  equal  to  that  of  wholesale 
trade,  72  ;  the  "  friction  "  of  re- 
tail trade  increased  by  bad 
money,  221-2,  386-7  ;  only  the  j 
smaller  bank  notes  used  in  re- 
tail transactions,  403-5. 

Revolution,  the  American,  paper- 
money  issues  caused  by,  326- 
35. 

Rhode  Island,  first  colonial  is- 
sues, 308-9  ;  bills  put  under  the 
ban  by  Connecticut,  314  ;  nine 
successive  "  banks,"  316-20  ; 
revolutionary  issues,  328-9; 
relapse  into  paper  issues  after 
the  war,  334. 

Ricardo,  David,  apparent  contra- 
diction of  views,  191^,  415ft  ; 
was  Mr.  Ricardo  ill-treated  by 


Mr.  Horner?  353;  The  High 
Price  of  Bullion,  the  territorial 
distribution  of  the  precious 
metals  through  the  agency  of 
price,  49-50  ;  money  cannot  be 
exported  to  excess,  51  ;  modern 
economy  of  money,  69  ;  the  sus- 
pension of  1797,  348  ;  Proposals 
for  a  Secure  and  Economical 
Currency,  Sir  James  Steuart's 
"ideal"  money,  291  n  ;  "elas- 
ticity" of  paper  money  (?), 
415/1 ;  governments  should  reg- 
ulate bank  issues  equally  with 
coin,  498ft  ;  Reply  to  Bosanquet, 
no  considerable  addition  can 
be  made  to  the  bullion  in  a 
country  without  an  increase 
of  money,  61ft ;  actual  cost 
of  coinage  the  proper  limit 
of  seigniorage,  187  ;  effect  of 
seigniorage  on  prices,  189-90, 
194,  197  ;  his  theory  requires  a 
qualification,  198-204,  279  ;  the 
premium  on  gold  is  the  meas- 
ure of  depreciation,  360^ ;  can 
money  be  issued,  if  the  circu- 
lation is  already  full?  427-8; 
importation  of  bullion  increases 
the  quantity  of  money,  468ft ; 
Political  Economy,  effects  of 
seigniorage  on  prices,  190-3 ; 
the  whole  charge  for  paper 
money  may  be  considered  as 
seigniorage,  197,  277-9. 

Rice,  as  money  in  early  Carolina, 
32. 

Richard  I.  of  England,  his  ransom 
obtained  by  melting  church  ves- 
sels, 118-19. 

Ring  money,  165-6. 

Rogers,  Prof.,  Political  Econo- 
.  my,  need  of  a  measure  of 
value,  6-7,  282-3;  money 
necessary  to  the  division  of 
labor,  17ft ;  Notes  to  Adam 
Smith,  proportion  of  money 
to  income  in  England,  74ft ; 
production  of  the  precious  met- 
als, 1849-68,  145-6ft;  Histori- 
cal Gleanings,  attributes  all 
great  inventions  to  Anglo-Saxon 
thought,  172ft ;  corruption  of 
the  coin  the  cause  of  French 
disasters,  1340-1440,  188-9; 
who  should  bear  the  cost  of 
coinage  ?  214 ;  History  of  Ag- 


546 


INDEX. 


riculture  and  Prices,  lead 
cheaper  than  iron,  down  to  the 
Great  Plague,  37ft ;  early  gold 
coin  of  England,  224ft ;  rela- 
tion of  gold  and  silver,  1202- 
1345,  230-1,  251-2. 

Roman    Empire,    Alison    attrib- 
utes its  downfall  to  failure  of 
the  mines,  81 ;  invasions  of  the  ! 
barbarians   cut  off  the  supply 
of  the  precious  metals,  127-8. 

Romans,  their  mode  of  con- 
structing mining  shafts,  105  n  ; 
their  use  of  gold  and  silver  in 
ornament,  119-20  ;  unskilled  in 
mining,  they  farm  the  mines, 
124-5. 

Roscher,  Prof.,  Principes  d' Eco- 
nomic Politique  [Wolowski's 
translation],  money  the  blood 
of  the  commercial  body,  16- 
17 'n ;  helps  those  who  are  eco- 
nomically feeblest,  20,  220-1'; 
prices  in  different  countries, 
58ft  ;  recommends  mixed  rents, 
160ft ;  compensatory  action  of  ! 
bi-metallic  money,  257  ;  bul-  j 
lion  movements  do  not  always 
affect  the  quantity  of  money, 
470?i. 

Rossi,  M.,  characteristics  of  the 
bank  note,  400ft  ;  advocates  re- 
striction of  bank  issues,  439. 

Ruding,  Rogers,  debasement  of 
English  coin,  186. 

Russia,  furs  used  as  money, 
33 ;  prohibits  export  of  the 
precious  metals,  46 ;  its  gold 
mines  described  by  Herodotus, 
re-discovered  in  eighteenth  cen-  , 
tury,  106 ;  increased  produc- 
tion after  1823, 140  ;  trial  of  pla- 
tinum money,  168  ;  mint,  173,; 
maintains  the  full  metallic 
value  of  its  small  coins,  218  ; 
relation  of  gold  and  silver  in 
the  coinage,  238;  government 
paper  money,  366-7  ;  bank  pa- 
per money,  522. 

Salt  (rock)  used  by  the  Abyssin- 

ians  as  money,  164. 
San  Domingo,  paper  money,  369ft. 
Sardinia,  its  yield  of  the  precious 

metals,  103. 
Saxony,  its  yield  of  the  precious 

metals,  105. 


Scotland,  its  yield  of  gold,  103  ; 
payment  of  agricultural  wages 
in  kind,  relation  of  its  coin  to 
that  of  England,  207 ;  bank 
notes  convertible  formerly  on 
condition,  429-30  ;  under  the  act 
of  1844,  450-1 ;  its  banking  sys- 
tem, 509-11. 

Scott,  Sir  Walter,  Letters  on  the 
Currency  of  Scotland,  difficulty 
of  keeping  the  precious  metals 
in  circulation  in  poor  countries, 
75,  305. 

Scrope,  Poulett,  his  scheme  for 
a  Tabular  Standard,  1GO-1. 

"Secured  Circulation,"  in  Eng- 
lish Bank  Act  of  1844,  447-51  ; 
in  the  New  German  law,  514-15. 

Seigniorage,  on  whom  should 
the  cost  of  coinage  fall?  181; 
the  economists  generally  favor 
seigniorage,  183 ;  the  English 
free  coinage,  183;  arguments  in 
its  favor,  183-6  ;  M.  Chevalier 
proposes  the  term  Brassage  to 
cover  actual  mint  expenses,  186; 
seigniorage  abused  ;  extensive 
debasement  of  coin,  186-7;  ef- 
fects on  prices,  189-93 ;  the 
whole  charge  for  paper  money 
may  be  considered  as  seignior- 
age ;  the  theory  of  seigniorage 
offers  the  best  approach  to  the 
discussion  of  paper  money,  277. 

"  Selecting"  the  coin,  195. 

Senegambia,  inhabitants  use  iron 
as  money,  37/i. 

Senior,  Prof.,  the  value  of  the 
precious  metals  depends  on  their 
value  as  materials  of  manufac- 
ture, 43??,  252;  the  markets  of 
the  world  are  England's  mines 
of  gold  and  silver,  56. 

Seyd,  E.,  Bullion  and  Foreign 
Exclianges,  use  of  lead  as 
money,  37  ;  the  properties  of 
silver,  38-9  ;  of  gold,  41  ;  ex- 
port of  money  from  Russia ; 
46w;  on  coinage,  171-80;  esti- 
mates the  stock  of  gold  and  sil- 
ver, 269  ;  paper  money  of  Rus- 
sia, 367 ;  of  Spain,  369  ;  Paris 
and  London  Exchange,  462ft  ; 
management  of  the  Bank  of 
France,  512. 

Shuckers,  J.  W.,  The  Finances, 
etc.,  of  the  ^Revolution,  the 


INDEX. 


547 


"Continental  Currency,"  328- 
30. 

Siberia,  discovery  of  its  auriferous 
sands,  143. 

Sicily,  produces  no  gold  or  silver, 
103. 

Silesia,  its  yield  of  the  precious 
metals,  105. 

Silver,  properties  fitting  it  for  use 
as  money,  38 ;  use  in  the  arts, 
43  ;  the  field  of  production.  99- 
108  ;  in  early  ages  regarded  as 
treasure,     not    money,    108-9  ; 
economic     conditions    of    pro- 
duction, 108-10,  337-8/1,  25471  ; 
history  of  production,  chap,  vi.- 
viii. ;  relation  to  gold  in  the  coin- 
age of  England,  217-18,  224-5  ; 
of  the  United  States,    225-8 ; 
variations  in  its  power  to  pur- 
chase gold,  229-30;    effect  of 
the  discovery  of  America,  251- 
3  ;  of  the  Californian  and  Aus- 
tralian discoveries,  233-4  ;  re-  I 
placed  by  gold  in  the  coinage 
of  France,  1849-58  ;  export  to  I 
India,   235-6  ;  change  in  com- 
parative production    of    silver  i 
and  gold,   1865-71 ;    effect   on  \ 
gold  price  of  silver,  237;    ex-  , 
tensive  demonetization  of  sil-  I 
ver,  further  effect  on  its  gold 
price,  233  ;  advocated  by  Locke 
as  the  sole  metal  of  unlimited 
tender,  238;  interchangeable  use 
of  silver  and  gold,  its  effect  on 
the    price    of    either,    248-53; 
may  form    one-fourth  the  re- 
serves of    the  Bank    of   Eng- 
land, the  Bank  in  1847  refused  | 
to  make  advances  on  deposits  of  j 
silver,  448  -9  n  ;  there  can  be  no  i 
true  par  of  exchange  between  | 
a  silver    country    and    a  gold 
country,  481. 

Slaves  employed  in  mines,  126  ; 
the  extension  of  the  Roman 
power  diminishes  the  supply 
and  makes  slaves  too  costly  to 
be  employed  in  mines,  127. 

Small  note  issues,  economical  ob- 
jections to,  439-42,  481-2. 

Smith,  Adam,  Wealth  of  Nations, 
a  guinea  is  a  bill  for  goods,  26, 
28 ;  nails  as  money,  32  n  ;  the 
durableness  of  the  metals  gives 
them  great  steadiness  of  value, 


40;  Smith's  refutation  of  the 
Mercantile  Theory,  46  ;  retail 
must  equal  wholesale  trade, 
72-3  ;  extent  of  the  effect  of 
the  American  discoveries  upon 
prices,  135;  disapproves  the  Eng- 
lish system  of  free  coinage,  183; 
effect  of  the  American  discov- 
eries on  the  relative  value  of 
gold  and  silver,  232  ;  ratios  of 
values  do  not  follow  the  ratios 
of  quantities,  244-5  ;  reason  for 
the  depreciation  of  "Colony 
Currency,"  278-9  ;  value  given 
to  money  by  its  being  received 
for  taxes,  289 n  ;  distinction  be- 
tween large  and  small  bank 
notes,  403-4 ;  cheapness  of 
paper  money,  400-1 ;  paper 
money  must  be  convertible  un- 
conditionally, 429-30  ;  origin  of 
the  bank  of  Amsterdam,  463. 

Smith,  Toumlin,  the  copper  coins 
of  England,  168. 

Snowden,  J.  R  ,  On  Coins,  French 
inventions  in  coinage,  172. 

South  Carolina,  Colonial  paper 
money,  325-6 ;  revolutionary 
issues,  328-9. 

Spain,  its  yield  of  the  precious 
metals,  104-5  ;  universal  circu- 
lation of  the  Spanish  dollar, 
179-80  ;  relation  of  gold  and 
silver  in  the  coinage,  232-3, 
240  ;  paper  money,  369. 

Spauldmo-,  E.  G.,  Financial  His- 
tory of  the  War,  origin  of  the 
United  States  legal-tender  notes, 
370-1 

Speculation  is  not  initiated  by  is- 
sues of  bank  paper  money,  432- 
3;  but  is  promoted  thereby,  433- 
5,  471-2,  502-3,  519-20,  526-7. 

Standard  of  value,  the  term  an 
unfortunate  one,  11-13  :  "  sin- 
or "  double "  standard, 
chaps,  xii.-xiii.  passim. 

Standard  for  deferred  payments, 
11-13,  90-2  ;  Corn  Rents  substi- 
tuted, 157-9  ;  a  tabular  stand- 
ard proposed, '159-63  ;  how  far 
inconvertible  paper  money  will 
perform  the  office,  377. 

Stanhope's  Act,  355. 

Stanley,  Sir  Thomas,  his  plan  for 
the  recoinage  of  1530,  207-8. 

Statistics  of  bank  issues  in  Eng- 


548 


INDEX. 


land,    444??,;    U.S.,    499-501; 
Sweden  and  Italy,  513ft. 

Steuart,     Sir    James,     Political 
Economy,  coinage  in  England, 
17 1ft  ;  his  theory  of   "  ideal  "  j 
money,  290-6  ;  Coin  of  Bengal,  \ 
a  money-of -account,  294-5. 

Story,  Judge,  effects  upon  public  : 
morality  of  the  paper  money  of  j 
the  Revolution,  334. 

Storch,  Prof. ,  how  to  prevent  the  | 
melting  of  the  coin   for  pur-  j 
poses  of  manufacture,  183  ;  cost 
of    coinage,  184ft ;    distinction 
between  paper  money  and  bank 
notes,  276ft. 

St.  Petersburg,  notes  of  the  Bank 
of,  322. 

Sugar,  as  money,  in  the  West  In- 
dies, 33. 

Sumatra,  its  yield  of  gold,  102. 

Sumner,  Charles  [U.  S.  Sen- 
ate], on  the  legal-tender  bill, 
373. 

Sumner,  Prof.,  History  of  Ameri- 
can Currency,  "the  worse  the 
currency,  the  more  mobile,"  j 
198ft ;  effect  upon  retail  prices 
of  an  excess  of  "  fractional  cur- 
rency/' 221  ;  relation  of  gold 
and  silver  in  the  coinage  of  the 
U.  S.,  225-27  ;  depreciation  of 
notes  payable  at  a  future  date, 
278  ;  the  money  of  the  early 
colonists,  307  ;  the  colonial  is- 
sues of  paper  money,  310,  317- 
18ft,  321,  323;  suspension  of  spe- 
cie payments  never  necessary, 
350  ;  the  bullionist  view  of  the 
exportation  of  money,  356-8; 
on  the  U.  S.  legal -tender  notes, 
373-375  ;  convertibility  of  bank 
notes,  lacking  in  the  bank- 
paper  money  of  the  U.  S., 
484  5  ;  swindling  banks,  496  ; 
the  crisis  of  1839,  500  ;  were  j 
the  bank  issues  prior  to  1837 
in  excess  ?  502  3ft. 

"Sweating"  the  coin,  194-5. 

Sweden,  iron  used  as  money,  S7n ; 
its  yield  of  the  precious  metals, 
103-4 ;  paper-money  banking, 
413,  513. 

Switzerland,  relation  of  gold  and 
silver  in  the  coinage,  238-9. 

Swift,  Dean,  The  Drapier's  Let- 
ters, the  small  coin  of  Ireland, 


168ft  ;    truck  preferred  to   the 
use  of  bad  money,  203. 
Sycee  silver,  101-2. 

Tabular  standard  for  deferred 
payments,  159-63. 

Talleyrand,  M.,  advocates  the  first 
but  opposes  the  second  issue  of 
"  assignats,"  339-40. 

Taxation,  is  it  reduced  by  an  in- 
crease of  money  ?  88  9  ;  paper 
money  as  an  escape  from  taxa- 
tion, 328^. 

Taxes,  paper  money  received  in 
payment  of,  289,  303w,  308,  312. 

Tea,  as  money,  in  China,  and  at 
the  Russian  fairs,  ^33. 

Telegraphs,  diminish  the  use  of 
money,  73. 

Tender,  legal,  silver  in  Great 
Britain,  in  limited  amounts, 
218  ;  in  the  U.  S.,  228  ;  the  pa- 
per  money  of  the  colonies,  308- 
9  ;  of  the  Continental  Congress, 
830-1,  334  ;  of  the  French  as- 
signats, 389-44;  of  the  U.  S. 
treasury  notes,  369-74. 

Thrace,  its  silver  mines,  106. 

Thibet,  its  yield  of  the  precious 
metals,  101. 

Thiers,  A.,  difficulty  of  re-estab- 
lishing the  credit  of  paper  mon- 
ey, 331  ;  the  "  assignats,  "3 


Thornton,  Henry,  Paper  Credit, 
352  ;  money,  an  order  for  goods, 
26  ;  the  causes  of  the  exporta- 
tion of  money,  53  4  ;  the  pow- 
er of  manufacturing  cheaply, 
more  valuable  than  any  stock 
of  bullion,  56;  bills  of  ex- 
change are  not  money,  402  ;  pa- 
per-money banking  in  Eng- 
land, 414. 

Tin,  used  as  money,  37. 

Tobacco,  as  money,  in  early  Ma- 
ryland and  Virginia,  32. 

Token-money,  see  Billon. 

Tomline,  Col.,  the  influence  of 
billon,  or  token-money,  on  the 
poorer  classes,  219. 

Tooke,  Thomas,  State  of  the  Cur- 
rency, causes  of  the  exportation 
of  money,  54,  519  ;  his  earlier 
views  of  bank  money,  425-6, 
433-4,  451  ;  the  causes  of  spec- 
ulation, 471  ;  bankers  pushing 


INDEX. 


549 


ont  their  notes,  489ft ;  History 
of  Prices,  economy  in  the  use 
of  money  through  savings 
banks,  71  ;  who  should  bear 
the  cost  of  recoinage  1  215ft ; 
effect  of  a  short  crop  of  wheat 
upon  the  price  of  barley,  249ft  : 
inconvertible  paper  money  does 
not  necessarily  depreciate,  279ft; 
Russian  paper  money,  3(36-67  ; 
definition  of  money,  396 ;  are 
the  larger  bank  notes  money? 
403-5  ;  are  deposits  ?  405  n  ;  the 
word  "represent,"  410;  con- 
vertible paper  money  must  op- 
erate precisely  like  metallic 
money,  415,  420  ;  it  will  do  so, 
420,  chap.  xix.  passim  [his  ear- 
lier views  opposed  to  this,  425- 
6,  433  4,  451,  519] ;  approves 
the  regulation  of  banks  by  gov- 
ernment, 438/1 ;  export  of  bul- 
lion need  not  decrease  the  quan- 
tity of  money,  569ft ;  paper- 
money  banking  in  the  U.  S., 
492/1-494. 

Torrens,  Col. ,  bank  notes  are.  mon- 
ey, 397  ;  advocates  the  "  Cur- 
rency Principle,"  425  ;  the  Eng- 
lish country  bank  circulation, 
450. 

Trade,  arises  out  of  the  division 
of  labor,  gives  rise  to  the  use 
of  money,  1. 

Transylvania,  its  yield  of  the 
precious  metals,  108. 

Treasury  notes,  are  they  money  ? 
405-6  ;  in  the  U.  S.,  494-5. 

Truck,  its  extension  favored  by 
bad  money,  193-204. 

Tucker,  Prof. ,  Money  and  Banks, 
advantages  derived  from  the  use 
of  money,  17-18  ;  slavery  in- 
creasing the  demand  for  money, 
73ft  ;  abrasion  of  coin,  177  ;  cir- 
culation of  foreign  coins  in  the 
U.  S.,  179  ;  irregularity  of  the 
coin,  206  ;  the  money  of  the 
Colonies,  306ft;  faults  of  Ameri- 
can paper-money  banking,  485-6. 

Turgot,  M. ,  Des  Richesses,  all  com- 
modities, in  some  sense,  money, 
14. 

Turkey,  its  yield  of  silver,  10ft  ; 
relation  of  gold  and  silver  in  the 
coinage,  239-40  ;  paper  money, 


Uniformity  in  quality,  as  an  ele- 
ment of  money,  33-4. 

United  States,  gold  product  of 
the  Atlantic  coast,  144 ;  of  the 
Pacific  coast  after  1848,  144-5  ; 
relation  of  the  U.  S.  to  the  gold 
supplies  after  1848,  151-2  ;  the 
mint,  172-3  ;  former  circulation 
of  foreign  coins,  179  ;  payment 
of  agricultural  wages  in  kind, 
200  ;  relation  of  gold  and  sil- 
ver in  the  coinage,  225-7,  238, 
266  ;  paper  money  of  the  revolu- 
tion, 326-35;  paper  money  of  the 
civil  war,  369-75  ;  its  paper- 
money  banking,  chap.  xxi. ;  its 
bank  notes  of  very  limited  con- 
vertibility, 479  ;  characteristics 
of  its  paper-money  banking, 
480-3,  497-8;  writers,  485-91 ; 
history,  1811-37,  491-503  ;  ef- 
forts at  reform,  503-6  ;  experi- 
ence, 1844-60,  506-8,  518  19  ; 
the  natural  export  of  the  U.  S., 
519-20  ;  effects  of  bank  money 
on  the  agricultural  class,  520-1; 
losses  by  bad  money,  522  -3 ; 
present  monetary  system,  507-  9. 

Ural  Mountains,  gold  mines,  140. 

Value,  distinguished  from  price, 
229-30;  money  as  a  denominator 
of  values,  4-9,  64-5,  280-9,  376- 
7  ;  steadiness  of  value  import- 
ant in  money,  36. 

Van  Buren,  President,  arraigns 
the  second  Bank  of  the  U.S., 
496ft. 

Vansittart,  N.f  his  resolutions, 
354,  364. 

Vegetable  products  do  not  rise  so 
high  under  increase  of  money 
as  animal  products,  155. 

Verri,  Count,  Delia  Pol.  Econ., 
money  the  universal  merchan- 
dise, 24??, 

Virginia,  attempt  to  establish  a 
mint,  172/?  ;  colonial  paper 
money,  324-5 ;  revolutionary 
issues,  328-9. 

Waken* eld,  E.,  bankers  pushing" 
out  their  notes,  488ft. 

Walcker,  Dr.  Karl,  a  tabular  stand- 
ard only  a  question  of  time,  160. 

Walker,  Amasa,  Science  of  Wealth, 

.  are  deposits  currency  ?  405ft ; 
his  views  on  convertible  paper 


550 


INDEX. 


money,  or  mixed  currency, 
486-91 ;  the  effect  of  bad  money 
on  the  agricultural  classes  of 
the  U.  S.,  519-21. 

Wampum,  as  money,  25,  305. 

War,  its  effect  on  the  mining  of 
the  precious  metals,  115-16  ; 
does  war  render  necessary  a 
suspension  of  specie  payments  ? 
326-7. 

Ward,  H.  G.,  Mexico,  effects  of 
Spanish  American  revolutions 
on  mining  industry,  139-40, 178. 

Ward,  Wm.,  Commercial  Legisla- 
tion of  1846  ;  did  Ricardo  re- 
cant? 362^. 

Webster,    Daniel,     international 
money,  382;  the  laboring  classes  j 
the  principal  sufferers  by  bad  j 
money,    384-5 ;   effect   of  com- 
peting issues,  480  ;   small-note 
issues,  481. 

Wells,  David  A.,  importance  of 
the  money  function,  15,  16  ; 
what  amount  of  money  is  re- 
quired to  carry  on  exchanges  ? 
76  ;  silver  too  cumbrous  for 
general  use  as  money,  409/1. 

Wheat,  as  money,  31. 

White,  A.  D.,  Paper  Money  Infla- 
tion in  France,  the  narrative  of 
the  "assignats,"  337-44  ;  dan- 
ger of  over-issue  of  inconverti- 
ble paper  money,  380-1. 

White,  Horace,  evils  of  American 
paper-money  banking,  497?i. 

"  Wild  Cat "  banking  in  the  U. 
S.,  502-3. 

William  III. ,  the  recoinage  of  his 
reign%209-13. 

Wilson,  Gloucester,  Defense  of 
Abstract  Currencies,  "ideal" 
money,  296-7. 

Wilson,  James,  the  monetary  cir- 
culation of  India,  148  ;  Capital, 
Currency,  and  Banking,  the  use 
of  money  ample  compensation  I 
for  its  cost,  22  ;  coin  actually  in  i 


circulation  is  withdrawn  from 
productive  uses,  22-3  ;  incon- 
vertible paper  money  need  not 
depreciate,  278ft  ;  convertible 
paper  money  should  operate 
precisely  like  metallic  money, 
419  ;  it  will  so  operate,  chap. 
xix.  passim  ;  does  the  exporta- 
tion of  bullion  diminish  the 
quantity  of  money  ?  469-70  ; 
conversion  of  circulating  into 
fixed  capital,  473  ;  vices  of  the 
American  system  of  paper- 
money  banking,  480. 

Wirth,  Max,  paper  money  of  Aus- 
tria, 368-9. 

Wiszniewski,  Prince,  believes 
that  a  well-founded  bank  would 
have  saved  Poland,  302. 

Wood,    Win.,   his    pence,  168ft, 


. 

Wolowski,M.  ,  on  the  word  Etahn, 
lift  ;  the  origin  of  bank  money, 
462ft;  L'Or  et  I'  Argent,  com- 
parative steadiness  in  value  of 
the  precious  metals,  40»  ;  effect 
of  uniting  gold  and  silver  in 
the  coinage  at  a  fixed  ratio,  253- 
65  ;  Les  Finances  de  la  Russie, 
Poland  the  sole  European  na- 
tion without  paper  money,  302  ; 
La  Question  des  Banques,  no 
instrument  costs  so  little,  rela- 
tively, as  money,  23ft  ;  the 
French  suspension  of  1848, 
365  n  ;  bank  notes  are  money, 
398  ;  the  banking  reserve, 
412  »  ;  advocates  restriction  of 
bank  issues,  439  ;  paper-money 
banking  in  the  U.  S.,  496-7ft  ; 
issuing  paper  money  on  securi- 
ties not  approved,  504;?  ;  saving 
by  issue  of  bank  notes  in  Eng- 
land, 523-4  ;  no  money  cheap 
but  good  money,  525/2. 

Yule,  Col.,  notes  to  Marco  Polo, 
302-4,  312ft. 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 
This  book  is  DUE  on  the  last  date  stamped  below. 
Fii 


OCT  7   1947 


CIR.  JAN  1  5  '81 

'ANS1 1997 


LD  21-100m-12,'46(A2012s   6)4120 


U.  C.  BERKELEY  LIBRARIES 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


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